London
CNN
—
The European Central Bank cut its main interest rate by a quarter of a percentage point Thursday, citing growing trade tensions after US President Donald Trump’s tariffs sparked a global trade war.
While the 20 countries that use the euro have built up “resilience against global shocks,” the “outlook for (economic) growth has deteriorated owing to rising trade tensions,” the ECB said in a statement.
The central bank is one of a number of global economic and financial players to warn that tariffs could weigh on economies and hurt everyone from major corporations to regular people. Similar warnings have been issued by the International Monetary Fund, the World Trade Organization, US Federal Reserve Chair Jerome Powell and others.
Speaking to reporters, ECB President Christine Lagarde said: “Disruptions to international commerce, financial market tensions and geopolitical uncertainty are weighing on business investment. As consumers become more cautious about the future, they may pull back on spending.”
The ECB’s rate cut to 2.25%, which was widely expected, is the seventh in the past year.
Yael Selfin, chief economist at consultancy KPMG, said the trade war – which has featured a flurry of tariffs, pauses, new tariffs and more delays – could lead to a pile-up of products as trade flows get snarled.
“The outfall of the trade disruptions could create a global glut of manufactured goods, which could see goods prices fall into deflationary territory this year,” Selfin added.
In contrast to the ECB, the US Federal Reserve held rates steady at its most recent policy meeting in March, and officials, including Chair Jerome Powell, have hinted that trade uncertainty will keep rates on hold awhile longer.
On Wednesday, Powell told a Chicago audience that Trump’s moves represent “very fundamental policy changes” and gave his starkest warning to date on the effect of tariffs on the US economy, the world’s largest.
Trump contrasted the approach of the two central banks on social media Thursday, ripping into Powell for holding rates.
“Jerome Powell of the Fed, who is always TOO LATE AND WRONG, yesterday issued a report which was another, and typical, complete ‘mess!’” Trump wrote. “Powell’s termination cannot come fast enough!”
But Lagarde, in her press conference Thursday, rallied behind Powell: “I have a lot of respect for my esteemed colleague and friend Jay Powell.”
She added that it is imperative that central banks stay independent of government influence or intervention, noting that any country that wants to join the eurozone must demonstrate that it can uphold that independence in law and in practice.
“For us, here, the independence of central banks is fundamental,” she said.
This story has been updated with additional information and context.