From Yahoo Finance: 2025-04-07 09:17:00

Global market turmoil caused by President Trump’s tariffs has strengthened the case for an ECB rate cut next week. Economists predict a slowdown due to tariffs outweighing inflationary effects. Markets project two rate cuts in the next two ECB meetings, expecting a recession and more monetary easing to combat it.

Despite uncertainty, a near-certain rate cut is anticipated next week. Market turmoil raises recession concerns, shifting focus from inflation. Influential policymakers support more easing, predicting a larger economic impact from tariffs than initially projected. Oil prices and inflation pricing indicate a recession is imminent.

The EU prioritizes negotiation over retaliation against the US for now. Some ECB policymakers believe the bank may underestimate the long-term inflationary impact of tariffs. They argue tariffs lead to less trade, new value chains, and higher costs, suggesting higher inflation in the future like pre-globalization eras.

ECB considers unconventional tools beyond rate cuts if market turmoil worsens. Bank lending disruption, unjustified yield differentials between Eurozone states, or a surge in investment grade yields could prompt intervention. Trump’s control of the narrative could escalate or resolve the crisis. ECB prepared for possible liquidity injections and dollar swap lines if needed.

Read more: Analysis-ECB rates could fall faster as recession risk mounts