ECB cuts interest rates in response to Trump tariffs, signaling economic slowdown

From Yahoo Finance: 2025-04-17 13:21:00

The European Central Bank (ECB) in Frankfurt, Germany, cut its main interest rate to 2.25% in response to slowing growth and tariffs imposed by Donald Trump. ECB President Christine Lagarde stated that US tariffs on EU goods were harming the European economy, leading to a reduction in interest rates.

The ECB’s benchmark deposit rate was cut by a quarter of a percentage point, aligning with economist expectations. Lagarde highlighted that trade tensions were escalating, impacting euro area growth by dampening exports and potentially dragging down investment and consumption. The central bank cited rising uncertainty as a key factor in the decision to cut rates.

Financial markets anticipate central banks globally to lower interest rates this year due to tariffs affecting global trade and economic growth. US President Donald Trump criticized the Fed chair, Jerome Powell, for being “too late and wrong” in response to the economic impact of tariffs on domestic prices and hiring, sparking market volatility.

The International Monetary Fund (IMF) expects slower global growth, but not a global recession, due to ongoing trade tensions. IMF Managing Director Kristalina Georgieva noted a decline in economic outlook forecasts, attributing it to trade tensions eroding trust in the international system and between countries. The IMF will address these concerns at upcoming spring meetings in Washington.

Inflation in the eurozone rose 2.2% in March, slightly lower than February’s 2.3%. Core inflation, excluding volatile items, decreased from 2.6% to 2.4%. The ECB indicated that most measures of underlying inflation suggest it will settle around the 2% medium-term target consistently. Market analysts predict further rate cuts in response to ongoing trade tensions.

Read more: ECB cuts rates for third time this year as Europe braces for Trump tariffs