Christine Lagarde appeared to be in relatively relaxed mood this afternoon as she took questions from the press pack in Frankfurt: she said the European Central Bank is in a “good place” – or as good as it can be with the threat of Donald Trump’s tariffs.
The ECB will be “data-dependent” on whether the next move in interest rates is up or down, she said repeatedly.
She said that the prospect of a 15% tariffs between the EU and US remained “conjecture”, but suggested the ECB would not exclude any actions depending on what happens with the trade war.
David Rea, chief economist for Europe at JLL, a property company, said:
The ECB’s decision to hold rates indicates it is keeping its powder dry as the economic situation continues to evolve. The bank is already significantly ahead of most central banks in terms of rates cut, and so the continuation of the neutral policy now means the ECB is in a good position to move rates in whichever direction necessary in future without the need for large swings.
Charlie Cornes, senior economist at the Centre for Economics and Business Research, said:
While inflationary pressures have eased considerably and the growth outlook for the Eurozone still relatively subdued, there is impetus for the ECB to move further with its loosening cycle. That said, uncertainty amidst ongoing trade negotiations with the US are holding the ECB back.
Maintaining its commitment to price stability, the ECB is likely to proceed cautiously. As such, we expect that the ECB will conduct only one further rate cut before the end of 2025.
In other business news:
President Donald Trump said on Thursday he would not destroy Elon Musk’s companies by taking away federal subsidies and that he wants the billionaire tech-entrepreneur’s businesses to thrive. “Everyone is stating that I will destroy Elon’s companies by taking away some, if not all, of the large scale subsidies he receives from the U.S. Government. This is not so!,” Trump said in a post on Truth Social. “I want Elon, and all businesses within our Country, to THRIVE.”
Tesla sales in Europe have collapsed by one-third this year, data shows, after Elon Musk warned the electric carmaker faced “a few rough quarters” ahead.
Donald Trump will heap further pressure on the chief of the Federal Reserve, Jerome Powell, on Thursday when the US president makes a visit to the central bank’s Washington offices.
UK businesses are cutting jobs at the fastest pace since February in response to higher taxes and global uncertainty caused by Donald Trump’s tariff threats.
Britain may have lower gas stockpiles going into the winter after the owner of British Gas indicated it plans to sell its stored gas to help reduce losses at a North Sea gas storage facility.
The boss Lloyds Banking Group has warned Rachel Reeves that increasing taxes on banks in her autumn budget would damage Labour’s plan for the City of London to power an economic recovery.
You can continue to follow our live blogs from around the world:
Or else why not follow the test match in our sports coverage. Thanks for following today. JJ
Key events
Please turn on JavaScript to use this feature
US markets have followed the lead of European indices, rising at the opening bell on Wall Street.
Here are the opening snaps, via Reuters:
S&P 500 UP 11.91 POINTS, OR 0.19 %, AT 6,370.82
DOW JONES DOWN 314.67 POINTS, OR 0.70%, AT 44,695.62
NASDAQ UP 80.58 POINTS, OR 0.38%, AT 21,100.59
It is not possible to have more anticipation of the future rate path at this point because of the uncertainty around the trade war, says Christine Lagarde.
We will just have to wait and see, Lagarde says – before wishing everyone a rest as Europe heads on its holidays.
A German ECB member argued last week that there was a “high bar” for future interest rate cuts. Christine Lagarde says that while some members of the ECB’s governing council have different preferences, there was a “unanimous decision to keep interest rates unchanged.
Could rates even go up? If trade tensions are resolved in short order it will clear some of the uncertainty that we have weighing on decisions, she says:
Could it lead to different movements? Future will tell. Our work will tell. I will not exclude anything.
The jury is out as to how quickly the uncertainty will be cleared, says Christine Lagarde, referring to the trade war launched by Donald Trump.
On the ECB’s position, she says:
You could argue that we are on hold. We are in this wait and watch situation.
Asked about the US’s push to dominate the market for stablecoins, Lagarde says the eurozone is pushing to create its own digital euro, but:
Cash will always be there, and banks will still be there intermediating the process.
Asked if there is a risk of undershooting on the inflation target, Christine Lagarde points out that the ECB is forecasting an undershoot. However, the central bank will not deviate from its plans on the basis of minor movements in inflation figures, she says – they will focus on 2% over the medium term, rather than worrying about dipping below 2% temporarily.
Asked about retaliatory tariffs, Lagarde says the ECB is looking at different rates of retaliatory tariffs in various scenarios – but it is too complicated to work out what will happen yet.
For the moment the ECB assumes the trade war will be inflationary, but there could also be bottlenecks and supply chain changes which will all come together to impact prices, she says:
There is a lot of uncertainty out there… At this point in time the conclusion is not definite as to which of those forces will prevail.
We are in a good place because inflation is at 2%, says Christine Lagarde.
Wages are heading in the right direction and are showing a downward trend as expected, she says. We have seen growth developing in a relatively favourable way, she adds.
She repeats caveats about the relative strength of first-quarter growth, noting again the “front-loading” of companies to get ahead of US tariffs. Nevertheless, she says there was also some consumption supporting growth.
And she appears comfortable with lower rates:
The inflationary shock of the past few years is behind us. Our job is now to look at what’s coming.
ShareThe sooner US-EU trade uncertainty diminishes, the better, says ECB’s Lagarde
Asked about exchange rates, Christine Lagarde says the ECB does not target a particular exchange rate.
On the US’s trade talks with the EU, Lagarde says reports the two sides are reaching a deal are still “conjecture”. However, “We are attentive to where the negotiations are heading”, she says. We take news one day at a time and at the moment we are relying on our baseline models from June, Lagarde says.
The sooner this trade uncertainty is resolved… the less uncertainty we will have to deal with. That would be welcome by any economic actors, including ourselves.
The ECB will follow a “data-dependent and meeting-by-meeting approach”, Christine Lagarde repeats.
The ECB’s governing council is determined to keep inflation at its 2% target, she adds. And with that she will take questions.
Risks to economic growth remain tilted to the downside, Christine Lagarde says – hardly a surprise when Donald Trump is looking at the US’s relationship with the EU.
Russia’s invasion of Ukraine and the “tragic” conflict in the Middle East also add to uncertainty, she says.
The path of inflation is more uncertain than normal because of the trade tensions, she says. Inflation could be higher if trade disruption disrupts supply chains, she adds, as happened during the coronavirus pandemic.
Higher investment in defence and infrastructure should support growth, Christine Lagarde says.
She repeats the endless call of ECB officials to strengthen integration of the eurozone and its banking system.
And then she goes into the easing inflationary pressures. Forward-looking indicators point to a further decline in wage growth, and consumer inflation expectations declined recently, she says.
Christine Lagarde takes to the podium in Frankfurt after leaving interest rates unchanged. She starts by reading out the decision.
The economy grew more strongly than expected as companies “front-loaded” exports to avoid tariff hikes, but growth was also bostered by consumption, she says.
Higher expected tariffs, a stronger euro and persistent uncertainty are making firms unwilling to invest, she says.
Could 2% be the end of the road for the latest rate cutting cycle?
Mark Wall, chief European economist at Deutsche Bank, said:
As effectively telegraphed by Lagarde, the ECB paused the easing cycle in July. The question is, will this be a short pause or a long pause? And could this be a pause that sees 2% policy rates eventually become the terminal rate in this easing cycle?
Uncertainty remains high and the ECB rightly wants to keep its options open. But if trade uncertainty fades, the combination of a resilient economy and significant fiscal easing will eventually translate into upside risks to inflation. Markets are not far away from switching focus from the last cut to the first hike.
We will hear what Christine Lagarde has to say very shortly.
There is very little reason for the ECB to leave its “good place” of standing on the sidelines waiting for more trade developments, said Carsten Brzeski, global head of macro at ING, an investment bank.
In a note to clients, he said:
After seven consecutive 25 basis point [0.25 percentage point] rate cuts and a total of 200 basis point rate cuts since September 2023, the European Central Bank kept its policy interest rates on hold at today’s meeting.
A stronger euro had argued for further cuts, Brzeski said, but that pressure diminished as the euro eased.
Not only did the euro’s appreciation come to an end, but the repeatedly postponed showdown in the US-EU trade negotiations also offered another reason to stay put today and keep the powder dry.
Still, with two more weaker inflation prints and hard macro data weaker than soft data over the summer, we can still see one final rate cut at the September meeting.