ECB expected to hold rates as tariff uncertainty lingers
The European Central Bank is set to hold interest rates for the first time in almost a year when policymakers meet this week, despite concerns over the potential impact of higher US tariffs on the eurozone economy. The 26 members of the ECB's governing council will meet just over a week before an August 1 deadline set by US President Donald Trump for the imposition of his government's punitive tariffs.
Trump has threatened to triple a basic tariff on imports from the EU to 30 percent if Brussels does not cut a deal by the end of the month, casting uncertainty over the future of transatlantic trade.
But the ECB was expected to hold tight on rates instead of preempting the outcome of negotiations, pausing a series of cuts that goes back to September. The central bank has reduced its benchmark rate a total of eight times since June last year and at each of its last seven meetings, bringing it down to two percent. The rapid reduction in rates has come as eurozone inflation has fallen back towards the ECB's two-percent target from the double-digit highs seen in 2022.
In June, eurozone inflation sat exactly on the ECB's target and was forecast by officials at the central bank to even out at two percent for the year.
The ECB would 'almost certainly leave interest rates unchanged' at the conclusion of its monetary policy meeting on Thursday, analysts from Italian bank UniCredit said in a note.
'The central bank will now want to have more clarity on the trade outlook before it considers adjusting its policy further,' they said. Despite the murky outlook, the ECB was in a 'good place' to deal with what comes next, executive board member Isabel Schnabel told financial news service Econostream Media this month.
And with the euro area economy showing some signs of life despite Trump's threats on tariffs, 'the bar for another rate cut is very high', she said.
Euro area factory output has grown four months in a row and the bloc's manufacturing PMI—a survey-based measure of manufacturer's overall health—rose in June to its highest level since August 2022. The improving picture painted by recent indicators could, however, be shattered were Trump to follow through with additional tariffs on top of steep existing levies on auto manufacturers, steel and aluminum.
The saber-rattling from the Oval Office over trade—and Trump's repeated attacks on the US Federal Reserve's independence—have otherwise had the impact of weakening the dollar against the euro. Were the euro to rise much further it would make matters 'much more complicated', ECB Vice President Luis de Guindos told Bloomberg TV this month.
A stronger single currency brought with it the risk of undershooting the ECB's inflation target by making imports cheaper and cooling the economy, while making European exports more expensive.
Already, the ECB's forecasts published last month predict inflation to fall to 1.6 percent in 2026, before recovering to two percent the following year. A strong euro meant rate cuts later in the year were a matter of 'when and by how much and not if', ING bank analyst Carsten Brzeski said.
The question would get 'more attention' at forthcoming ECB gatherings, Brzeski said, but the uncertainty over US tariffs argued in favor a 'wait-and-see approach'.
Trump had upped the threatened level of tariffs on EU exports to the United States since the ECB's last meeting but where they would land after August 1 was uncertain. With the EU locked in talks with Washington to avoid higher tariffs, the necessary 'clarity is unlikely to emerge by next Thursday', UniCredit analysts said.
A pause was likely before another cut later in the year, perhaps already in September, the first meeting after the summer, they said.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Al Jazeera
an hour ago
- Al Jazeera
Trump sets 19% tariff on Philippines in new trade deal
United States President Donald Trump said he has reached a trade deal with the Philippines, charging it 19 percent tariff rate for goods it exports to the US, while US goods will pay zero tariffs. The president announced the new agreement on Tuesday on his social media platform Truth Social shortly after his meeting with President Ferdinand Marcos Jr at the White House. 'We concluded our Trade Deal, whereby The Philippines is going OPEN MARKET with the United States,' Trump said on his Truth Social platform after welcoming Marcos to the White House. The 19 percent tariff rate was just below the 20 percent threatened by Trump earlier this month, but above the 17 percent rate set in April when Trump announced what he called reciprocal tariff rates for dozens of countries. It matches the 19 percent rate announced for Indonesia and bests Vietnam's slightly higher rate of 20 percent. The US had a deficit of nearly $5bn with the Philippines last year on bilateral goods trade of $23.5bn. Marcos, the first Southeast Asian leader to meet Trump in his second term, told reporters at the start of the meeting that the US was his country's 'strongest, closest, most reliable ally'. Trump said the two Pacific allies would also work together militarily but gave no details. Philippine Assistant Foreign Secretary Raquel Solano said last week that trade officials have been working with US counterparts seeking to seal a 'mutually acceptable and mutually beneficial' deal. Protesters gathered near the White House as Marcos arrived, demanding the Philippine leader address the pleas of Filipino Americans and migrant workers who have made multiple requests for support amid US immigration raids. Trump underscored the importance of the US-Philippine military relationship, saying, 'They're a very important nation militarily, and we've had some great drills lately.' Marcos, who arrived in Washington on Sunday, met with Defense Secretary Pete Hegseth and Secretary of State Marco Rubio on Monday. During his trip, he will also meet US business leaders investing in the Philippines. Philippine officials say Marcos planned to stress that Manila must become economically stronger if it is to serve as a truly robust partner to the US in the Asia Pacific region. Looming pressure on China During the Oval Office event, Trump said he may visit China for a landmark trip 'in the not-too-distant future' and noted the Philippines had distanced itself from Beijing after his election last November. 'The country was maybe tilting toward China, but we un-tilted it very, very quickly,' Trump said. The US president has sought to lower tensions with Beijing in recent weeks after pausing a tit-for-tat tariff war that has upended global trade and supply chains. US Treasury Secretary Scott Bessent said on Tuesday he would meet with Chinese officials in Sweden next week. No comment was immediately available from Marcos, who did not speak to reporters before leaving the White House grounds.
Al Jazeera
10 hours ago
- Al Jazeera
Why Trump's attacks on Jerome Powell are raising fears for the US economy
United States President Donald Trump has spent months attacking US Federal Reserve chairman Jerome Powell for not moving faster to lower interest rates. While Trump is not the first president to clash with the head of the US central bank on monetary policy, he has gone further than his predecessor by threatening to fire Powell and pressuring him to resign. Trump's barbs have raised concerns about the prospect of the Fed losing its independence, which would have serious ramifications for the US economy. What has Trump said about Powell? Trump's main gripe with Powell has been the Fed's decision to keep its benchmark interest rate in the range of 4.25 to 4.50 percent. The US central bank has resisted calls to lower the rate, which would spur economic growth by reducing borrowing costs across the economy, to keep a lid on inflation. While inflation remains modest at present, Powell and his colleagues fear that prices could rise significantly in the coming weeks and months due to Trump's tariffs. Trump has argued that the rate should be as low as 1 percent. Trump has been at odds with Powell since his first term, when he nominated him to the top job, but the president began ramping up his attacks in April, when he branded the monetary policy chief 'a major loser' and 'numbskull' whose 'termination cannot come fast enough'. Since then, Trump has made conflicting remarks about whether he intends to fire Powell, and last week asked a group of Republican lawmakers for their opinion on the matter. While Trump continues to blast Powell on social media, other top White House officials have joined the condemnation. Earlier this month, Office of Management and Budget Director Russell Vought accused Powell of mishandling the 'ostentatious' $2.5bn refurbishment of the Fed's headquarters in Washington, DC. On Tuesday, US Treasury Secretary Scott Bessent accused the Fed of 'persistent mandate creep into areas beyond its core mission' and called for a review of the renovation project. Today in a CNBC interview, I called for a review of the Federal Reserve. It is my belief that the central bank should conduct an exhaustive internal review of its non-monetary policy operations. Significant mission creep and institutional growth have taken the Fed into areas that… — Treasury Secretary Scott Bessent (@SecScottBessent) July 21, 2025 Does Trump have the power to remove Powell? The Fed chair is harder to remove than the heads of other independent government agencies. Under the Federal Reserve Act of 1913, the president may remove the head of the central bank 'for cause' – widely interpreted to mean proof of corruption or malfeasance. A landmark 1935 Supreme Court ruling further insulated the Fed from political pressure by explicitly stating that the heads of independent agencies cannot be removed without cause. David Wilcox, a senior fellow at the Peterson Institute for International Economics who served on the staff of the Federal Reserve Board, said the Trump Administration appeared to be zoning in on the Fed's renovation project to create a pretext to fire Powell. 'The way they're doing that is they're drumming up a lot of controversy around the expenses that have been incurred and will be incurred in the renovation of two of the historic buildings,' Wilcox told Al Jazeera. 'The drumbeat of criticism seems to be that Powell allegedly has mishandled this situation, and concern is that this very small-scale situation might be somehow blown up into an excuse for firing Powell 'for cause'.' Is there any precedent for Trump's campaign against Powell? In the late 1960s and early 1970s, presidents Lyndon B Johnson and Richard Nixon – a Democrat and a Republican – both famously exerted pressure on the Fed chair to keep interest rates low. Some historians have theorised that Nixon's cajoling of then-Fed chair Arthur Burns stopped him from rolling out rate hikes that could have halted the emergence of double-digit inflation in the mid-1970s. 'What does compromising central bank independence do? It runs the possibility of giving some kind of short-term gain for long-term pain,' Mark Spindel, the CIO of Potomac River Capital and a Federal Reserve historian, told Al Jazeera. 'And politicians have short memories.' How will markets react if Powell is removed? Suggestions that Trump could remove Powell have roiled markets on several occasions. On Wednesday, the benchmark US S&P 500 briefly fell by 0.7 percent, and the US dollar sank 0.9 percent, following reports that Trump had asked Republican lawmakers whether he should fire the Fed chair. Stocks recovered a short time later after Trump denied that he had any plans to remove Powell, the latest example of what investors have dubbed the 'TACO Trade' – short for 'Trump Always Chickens Out'. If Trump were to follow through on his threat to remove Powell, the stock market and confidence in the US economy would take a major hit, Wilcox said. 'It would probably be reflected in an increase in the expected inflation that's built into borrowing rates. It would be reflected in an increase in the risk premiums that are built into long-term Treasury rates,' he added. 'It would probably be reflected in a weakening of the US dollar because of a loss in confidence that would follow from the knocking down of yet one more signature aspect [of the economy] that has been taken for granted for many decades.' Why might Trump not want to fire Powell? Fed historian Spindel said Trump may ultimately decide to keep Powell despite his threats. The Fed chairman's term expires in May next year, Spindel said, and, until then, Trump can use Powell as a scapegoat for any problems with the economy. As a businessman, Trump also considers the stock market an important barometer of success, Spindel added. 'The market is an important governor on his policies,' he said. 'He has a large constituency in the corporate sector. He obviously enjoys support from the middle and upper wealthy class, and he doesn't want to torpedo the equity market.'
Qatar Tribune
a day ago
- Qatar Tribune
ECB expected to hold rates as tariff uncertainty lingers
Agencies The European Central Bank is set to hold interest rates for the first time in almost a year when policymakers meet this week, despite concerns over the potential impact of higher US tariffs on the eurozone economy. The 26 members of the ECB's governing council will meet just over a week before an August 1 deadline set by US President Donald Trump for the imposition of his government's punitive tariffs. Trump has threatened to triple a basic tariff on imports from the EU to 30 percent if Brussels does not cut a deal by the end of the month, casting uncertainty over the future of transatlantic trade. But the ECB was expected to hold tight on rates instead of preempting the outcome of negotiations, pausing a series of cuts that goes back to September. The central bank has reduced its benchmark rate a total of eight times since June last year and at each of its last seven meetings, bringing it down to two percent. The rapid reduction in rates has come as eurozone inflation has fallen back towards the ECB's two-percent target from the double-digit highs seen in 2022. In June, eurozone inflation sat exactly on the ECB's target and was forecast by officials at the central bank to even out at two percent for the year. The ECB would 'almost certainly leave interest rates unchanged' at the conclusion of its monetary policy meeting on Thursday, analysts from Italian bank UniCredit said in a note. 'The central bank will now want to have more clarity on the trade outlook before it considers adjusting its policy further,' they said. Despite the murky outlook, the ECB was in a 'good place' to deal with what comes next, executive board member Isabel Schnabel told financial news service Econostream Media this month. And with the euro area economy showing some signs of life despite Trump's threats on tariffs, 'the bar for another rate cut is very high', she said. Euro area factory output has grown four months in a row and the bloc's manufacturing PMI—a survey-based measure of manufacturer's overall health—rose in June to its highest level since August 2022. The improving picture painted by recent indicators could, however, be shattered were Trump to follow through with additional tariffs on top of steep existing levies on auto manufacturers, steel and aluminum. The saber-rattling from the Oval Office over trade—and Trump's repeated attacks on the US Federal Reserve's independence—have otherwise had the impact of weakening the dollar against the euro. Were the euro to rise much further it would make matters 'much more complicated', ECB Vice President Luis de Guindos told Bloomberg TV this month. A stronger single currency brought with it the risk of undershooting the ECB's inflation target by making imports cheaper and cooling the economy, while making European exports more expensive. Already, the ECB's forecasts published last month predict inflation to fall to 1.6 percent in 2026, before recovering to two percent the following year. A strong euro meant rate cuts later in the year were a matter of 'when and by how much and not if', ING bank analyst Carsten Brzeski said. The question would get 'more attention' at forthcoming ECB gatherings, Brzeski said, but the uncertainty over US tariffs argued in favor a 'wait-and-see approach'. Trump had upped the threatened level of tariffs on EU exports to the United States since the ECB's last meeting but where they would land after August 1 was uncertain. With the EU locked in talks with Washington to avoid higher tariffs, the necessary 'clarity is unlikely to emerge by next Thursday', UniCredit analysts said. A pause was likely before another cut later in the year, perhaps already in September, the first meeting after the summer, they said.
