European Central Bank expected to cut rates again amid worries about
Trump's tariffs
[April 17, 2025] By
DAVID McHUGH
FRANKFURT, Germany (AP) — Worries about economic growth fueled by U.S.
President Donald Trump's tariff onslaught will likely push the European
Central Bank to cut interest rates on Thursday for a seventh straight
time, a move that should make credit more affordable for business and
consumers and promote economic activity.
At the bank's last meeting on March 6, ECB President Christine Lagarde
had raised the possibility of an upcoming “pause” in the bank's series
of rate cuts. But that option was practically eliminated on April 2,
when Trump shocked global markets with proposals for unexpectedly high
new tariffs, or import taxes, of 10% to 49% on global trading partners.
Analysts say Thursday's meeting of the bank's rate-setting council in
Frankfurt should see a quarter-point cut in the bank's benchmark rate to
2.25%. The bank has been steadily cutting rates after raising them
sharply to combat an outbreak of inflation from 2022 to 2023.
Now that inflation has fallen, growth worries have taken center stage.
The economy in the 20 countries that use the euro grew a modest 0.2% in
the last three months of 2024. Inflation was 2.2% in March, close to the
bank's target of 2%.
The bank's benchmark steers rates throughout the economy. Lower interest
rates make it less expensive to borrow money and buy goods ranging from
homes to new factory equipment. That supports spending, business
investment and hiring.
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A view of the European Central Bank in Frankfurt, Germany,
Wednesday, April 16, 2025. (AP Photo/Matthias Schrader)
 Trump has suspended the tariffs for
90 days, but the possibility of the 20% tariff rate he has proposed
for Europe left economists and policymakers concerned that the
higher costs will weigh on business activity — and lead to slower
growth or even a recession if he carries through. The U.S. is
Europe's largest trade partner with some 4.4 billion euros ($5
billion) in goods and services crossing the Atlantic every day in
both directions.
As the European Commission puts it, “the transatlantic trade
relationship is the most important commercial relationship in the
world.”
Uncertainty is another factor that could slow the economy since
Trump's pause for negotiations leaves it unclear where the tariff
rate will actually settle. Businesses may hold off on making
decisions if they don't know what their costs will be.
Economists at Berenberg bank think that by mid-year some of the
tariffs will be negotiated away, ending at around 12%. However that
is still around 10 percentage points higher than average tariffs
before Trump. On top of that comes a separate 25% tariff on autos
from all countries which will hit Europe's prominent auto industry
hard.
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