ECB cuts interest rates with Trump in sight: "Uncertainty is huge"

BrusselsThis is the latest safe bet of the European Central Bank (ECB). As expected, the banking body has decided this Thursday to lower interest rates again by 0.25 basis points almost unanimously – only one member of the governing council of the entity has abstained – and set them at the lowest level since February 2023, at 2.5%. From there, however, the next movements of the entity chaired by Christine Lagarde are not so clear and are awaiting the consequences of Donald Trump's return to the White House, which threatens to a trade war in the European Union and an increase in protectionism. "The uncertainty is enormous," warned the French leader in a press conference.

In this sense, the way Lagarde has defined the current level of the price of money is key: she has gone from describing it as "restrictive" to "considerably less restrictive." "It is not an innocuous change, it has its reason for being," she wanted to make clear. In fact, it means that the ECB leaves it up in the air whether it will continue to lower interest rates in the next meetings or whether it even considers that they are at sufficiently low levels and that at this time it is no longer necessary to continue on the downward path of the price of money that it began in June of last year.

In this sense, banking analysts foresee division among the governors of the central banks of the different member states in the next meetings on whether to lower or maintain the price of money. The biggest concern, however, is not the macroeconomic situation, which has not changed much in recent days, but the uncertainty posed by the Trump administration.

So, Eurozone economic growth The economic growth rate remains weak and shows signs of stagnation, especially in the two main economies of the European Union, Germany and France. In fact, the ECB has lowered its economic growth forecasts to 0.9% in 2025, 1.2% in 2026 and 1.3% in 2027. According to Lagarde, this "correction" of the projections is due to a "decline in exports and persistent weakness" affected by "uncertainty about trade policies and economic policies in general".

On the contrary, the ECB's projections on inflation are very similar to the previous ones it published, and are only slightly revised upwards due to the rise in energy prices. "The disinflation process continues to advance," Lagarde noted. Specifically, it sets the average rate of price increases at 2.3% in 2025 and points out that next year it would already reach the ECB's own objective of placing it below 2%, at 1.9%. However, in 2027 it would rise slightly, to 2%.

As for core inflation, which excludes the elements with more volatile prices such as energy and fresh food, it would remain at similar levels. In 2025 it would be at 2.2%, in 2026 already at 2% and in 2027 at 1.9%. In this case, Lagarde assures that it is due to the fact that wages continue to increase, although in a more "moderate" way, and that prices in some sectors are still "adjusting to the previous escalation of inflation with a considerable delay".

It should be remembered that raising interest rates is one of the main tools available to the ECB to stop inflation, because it leads to an increase in the cost of loans granted by banks and, therefore, consumption is reduced. Therefore, although it reduces the rate of increase in prices, it cannot be abused because it leads to a slowdown in economic activity, as has become evident in the countries of the single currency as a whole.

The trade war between the US and the EU

Lagarde has avoided giving any details about future ECB decisions and has said that in this international political context "everything can change dramatically from one day to the next." For this reason, the president of the organization has insisted, she is not committing to any specific path of reducing the price of money. "We will continue to base ourselves on the [macroeconomic] data that we have at any given time and we will decide meeting by meeting," said the French leader.

At this point she has also been critical of the protectionist threats of the Trump administration, especially regarding the tariffs that it intends to impose on the European Union. "I think that all the members of the governing council [of the ECB] think that import taxes are not good in any sense," said Lagarde, who has said that even "before" they are applied "they are already negative" because "they undermine the confidence" of the markets. In addition, she urged the EU and European leaders to negotiate with the White House from a position of "strength" and without bowing their heads to the US president's push-buttons.

On the other hand, Lagarde has also said that she remains "vigilant" the proposal of the President of the European Commission, Ursula von der Leyen, on rearming Europe and the emergency summit of European leaders that It takes place this Thursday in Brussels, but admits that it is still too early to "assess" the effects it may have in terms of inflation and economic growth. Among other things, the Executive proposes to relax fiscal rules so that Member States can increase their military spending and guarantee loans for the purchase of weapons. In total, it plans to mobilise up to 800 billion euros.