ECB to Hold Policy Meeting Amidst US Tariff Threats and Economic Uncertainty
London, United Kingdom (Reuters) - The European Central Bank (ECB) will hold its first policy meeting on Thursday since the return of Donald Trump to office, casting a shadow of uncertainty over the eurozone's economic outlook.
1. Rate Cuts Expected
Traders widely anticipate a further 25 basis-point cut in the key deposit rate to 2.75%, as the ECB continues to combat sluggish growth. The central bank removed language in December suggesting a commitment to restrictive rates.
2. Trump's Tariff Impact
Economists believe that Trump's return has not significantly altered the ECB's view on tariff risks. While the US President has not implemented immediate tariffs, concerns remain over potential trade tensions with Canada, Mexico, China, and the European Union. The ECB is closely monitoring the impact of tariffs on eurozone inflation.
3. Extent of Rate Cuts
Traders forecast close to four rate cuts from the ECB this year, aiming for rates near 2%. However, some policymakers urge caution, acknowledging the need for careful consideration of the pace and extent of rate reductions.
4. Inflation Concerns
Despite a rise in inflation to 2.4% in December, economists generally do not anticipate major concerns for the ECB. The bank expects wage growth to slow, which could moderate services inflation.
5. Fed Rate Cuts
If the US Federal Reserve (Fed) pauses its rate-cutting cycle, the ECB may slow its own pace of reductions. However, the decision will depend on the reasons behind the Fed's move. A strong US economy or stagflationary conditions could influence the ECB's stance.