MadridNone of Donald Trump’s announcements regarding tariffs have gone unnoticed by the European Central Bank (ECB), just as it has not gone unnoticed the trade agreement between Europe and the United States to end, precisely, the tariff chaos and avoid an escalation of the trade war. This Wednesday, the president of the European banking institution, Christine Lagarde, announced that they will take the agreement reached into account when making a decision on interest rates at the next meeting, scheduled for September 14. Wednesday’s meeting was Lagarde’s first statement since the EU executive reached an agreement with the White House.
“The outcome of the trade agreement is far below the severe scenario of US tariffs exceeding 20% on eurozone goods projected [by the ECB] last June,” Lagarde acknowledged. However, the president of the organization warned that “uncertainty persists” because some products, such as pharmaceuticals, remain unclear. Thus, the ECB will consider the trade implications of the agreement in its Governing Council decisions in the coming months. At its last meeting in July, the central bank decided to pause its rate cuts, leaving them at 2%.
Economic slowdown
Lagarde also anticipated that the agreement will determine the macroeconomic projections for September. In fact, since the White House unleashed the trade war, the ECB has consistently warned of its impact on the economy: back in March, the ECB president predicted that in a worst-case scenario, it could reduce the EU’s economic growth by up to five-tenths of a percentage point in 2025 and put pressure on the economy. This Wednesday, Lagarde reiterated this warning and anticipated that an economic slowdown is expected as early as the third quarter of the year, that is, between July and September.
Lagarde’s participation this Wednesday in the World Economic Forum’s International Business Council comes on the heels of the Jackson Hole conclave, the annual gathering named after the venue where it takes place and where central bankers from around the world, some finance ministers, as well as academics and business leaders meet to discuss the future. Beyond the talks, the conclusions they reach ultimately influence monetary policy, such as interest rates, and consequently, everyday issues such as the cost of credit, mortgages, and the spending decisions of families and governments.
This year, all eyes will be on the chairman of the United States Federal Reserve (Fed), Jerome Powell, who is expected to speak this Friday (the banking conclave begins on August 21 and ends on Saturday, August 23). For the moment, the Fed has opted for prudence and its latest decision was to keep rates unchanged, despite pressure from Donald Trump to lower them. The institution chaired by Powell left them between 4.25% and 4.5%, and his main reason was, precisely, the tariff war. His speech is expected to provide an insight into what the Fed will decide at its next meeting on September 17.