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On Thursday (April 17), the European Central Bank (ECB) cut interest rates by 25 basis points. The ECB is essentially the body that is responsible for maintaining price stability in the euro area, and it acted because, it said, “inflation is on track to settle at around our 2% target”.
On the employment front, too, the ECB had positive news to share: “Unemployment is now the lowest it has been since the start of the euro.”
What about the prospects of growth?
Of course, like most policymakers around the world, there are concerns about economic growth, thanks to the possible adverse effects of US tariffs.
“Tensions over global trade and the related big swings in financial markets are clouding the outlook for the economy… New trade barriers make it more difficult for Europe to sell its exports. Companies may invest less because of trade tensions around the world and the stress in financial markets. Consumers are more concerned about the future and are cautious about their spending,” stated the ECB.
A lower interest rate is expected to bring down borrowing costs and help boost economic activity in the region.
As CHART 1 shows, the euro area has experienced almost stagnant economic growth — with its GDP staying almost flat since the Global Financial Crisis of 2008.
So what’s happening in the United States?
President Donald Trump reacted to the ECB cut by yet again criticising Federal Reserve Chairman Jay Powell, mocking him as a certain Mr “Too Late”.
Trump wrote the following on Truth social:
“The ECB is expected to cut interest rates for the 7th time, and yet, “Too Late” Jerome Powell of the Fed, who is always TOO LATE AND WRONG, yesterday issued a report which was another, and typical, complete “mess!” Oil prices are down, groceries (even eggs!) are down, and the USA is getting RICH ON TARIFFS. Too Late should have lowered Interest Rates, like the ECB, long ago, but he should certainly lower them now. Powell’s termination cannot come fast enough!”
Does that mean Trump will fire Powell?
There are two things to remember here.
ONE, while Trump believes he can fire Jay Powell, most commentators who map this issue in the US do not believe he can.
What is worse is the fact that if Powell is “terminated” just because he did not cut interest rates as and when Trump wanted, it would send out a very damaging signal about the independence of the US Fed and the running of the US economy.
It is exactly by avoiding this kind of behaviour that the US and the dollar have been able to gain global trust and become the default currency for the rest of the world over many decades.
TWO, Trump seems to fail to understand that it is his policies that have made it difficult for Powell to cut interest rates. As Powell stated on Wednesday in Chicago, the Trump tariffs are likely to raise inflation. If there were no tariffs, the US Fed was expected to cut interest rates as they are fast aligning with the Fed’s 2% target.
