{"id":29007,"date":"2025-04-18T01:42:09","date_gmt":"2025-04-18T01:42:09","guid":{"rendered":"https:\/\/www.europesays.com\/uk\/29007\/"},"modified":"2025-04-18T01:42:09","modified_gmt":"2025-04-18T01:42:09","slug":"why-did-the-european-union-cut-its-benchmark-rate","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/uk\/29007\/","title":{"rendered":"Why did the European Union cut its benchmark rate?"},"content":{"rendered":"

It\u2019s pretty much central bank week: First, we had Federal Reserve Chair Jay Powell\u2019s comments Wednesday underlining all the uncertainty<\/a> the Fed is dealing with. President Donald Trump\u2019s tariffs will likely push inflation up and growth down, meaning monetary policymakers will likely sit on the sidelines and keep interest rates as is for now. <\/p>\n

Canada\u2019s central bank held steady Wednesday<\/a> after seven consecutive rate cuts.<\/p>\n

And Thursday, the European Central Bank, as expected, cut its benchmark interest rate<\/a> by 25 basis points to 2.25%. It\u2019s the ECB\u2019s seventh rate cut in a year, and there are likely more to come.\u00a0<\/p>\n

First thing to know is that the eurozone economy was already pretty weak before Trump started imposing tariffs and threatening more, throwing global trade and financial markets into turmoil.\u00a0<\/p>\n

The U.S., by contrast, headed into the year strong, said Gary Schlossberg, a global strategist at the Wells Fargo Investment Institute.<\/p>\n

\u201cWe\u2019re coming off growth of close to 2.5% in the final quarter of 2024. Europe was running a growth rate about a third of that,\u201d he said.<\/p>\n

And then Europe faced \u201ca negative economic shock from the uncertainty from the Trump tariffs, potentially reduced export opportunities,\u201d said Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics.<\/p>\n

Bottom line?<\/p>\n

\u201cThese new headwinds in their economy could impact growth, makes them feel an urgency to cut interest rates,\u201d said Josh Lipsky, senior director of the Atlantic Council\u2019s GeoEconomics Center.<\/p>\n

Now, Europe does have other tools to strengthen its economy aside from lowering interest rates. Germany has launched a wave of fiscal stimulus, boosting defense and infrastructure spending.<\/p>\n

And, said PIIE\u2019s Kirkegaard, the EU is moving to reduce its dependence on exports to the huge U.S. market.<\/p>\n

\u201cThey are now starting free-trade negotiations with Malaysia, Indonesia, the United Arab Emirates, potentially even India,\u201d he said.<\/p>\n

But all this takes time. In the meantime, it\u2019s easy for the European Central Bank to cut interest rates now, because it has inflation well under control and lower rates aren\u2019t likely to reverse that.<\/p>\n

The situation\u2019s totally different for the Fed, said Lipsky at the Atlantic Council.<\/p>\n

\u201cBecause tariffs can lead to higher prices, this puts the Fed in a very difficult position, unlike its counterparts around the world,\u201d he said.<\/p>\n

While other central banks can keep lowering interest rates to stimulate growth, Lipsky said the Fed is stuck: It\u2019s very reluctant to cut rates while there\u2019s a risk that tariffs will push U.S. inflation higher again.<\/p>\n

Related Topics<\/p>\n","protected":false},"excerpt":{"rendered":"It\u2019s pretty much central bank week: First, we had Federal Reserve Chair Jay Powell\u2019s comments Wednesday underlining all…\n","protected":false},"author":2,"featured_media":29008,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5174],"tags":[17408,2000,299,5187,14441,1699,7372,478,15292],"class_list":{"0":"post-29007","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-eu","8":"tag-canada-central-bank","9":"tag-eu","10":"tag-europe","11":"tag-european","12":"tag-european-central-bank","13":"tag-european-union","14":"tag-federal-reserve","15":"tag-interest-rates","16":"tag-rate-cuts"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@uk\/114356429980456751","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/29007","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=29007"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/29007\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/29008"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=29007"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=29007"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=29007"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}