European Central Bank Cuts Rates Amid Tariff Uncertainty

Business|European Central Bank Cuts Rates Amid Tariff Uncertainty

The European Central Bank cut interest rates on Thursday as policymakers grappled with heightened economic uncertainty, particularly from President Trump’s chaotic trade policies.

Policymakers, who set rates for the 20 countries that use the euro, lowered their key rate a quarter point to 2.25 percent. It was the seventh consecutive cut since June as inflation has continued to slow and the economic outlook for the region has darkened. The region’s largest economy, Germany, which is heavily oriented toward exports, faces the dual challenges of tariffs on goods sent to the United States and a weaker global economy weighed down by trade uncertainty.

Mr. Trump has raised tariffs on nearly all imports to the United States from most countries to 10 percent, increasing the specter of a global trade war. There are also higher tariffs on certain goods like cars and steel, while a trade war with China has pushed import levies between each country above 100 percent.

“The euro area economy has been building up some resilience against global shocks, but the outlook for growth has deteriorated owing to rising trade tensions,” policymakers said in a statement on Thursday.

The view of Europe's economy has shifted quickly. A month ago, traders were evenly split on whether eurozone policymakers would hold or cut rates. Last month, policymakers noted that increased European fiscal spending, particularly on defense, could support the economy and that consumer spending should pick up because of lower inflation.

But that optimism has rapidly given ways to fears that the region is at risk of recession if business investment and consumer spending is suppressed by uncertainty.