(Bloomberg) -- Plans by the European Central Bank to push ahead with interest-rate cuts are withstanding the early jolts in US economic policy driven by Donald Trump’s return to the White House.
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Speaking during the World Economic Forum in Davos, Switzerland, officials including President Christine Lagarde said euro-zone inflation remains primed to hit 2% this year, allowing them to further loosen the shackles on the faltering economy.
It’s not that Trump’s early inaction on Europe means the danger has passed. On Tuesday, he ominously described the European Union as “very, very bad” to the US on trade. But the ECB won’t react unless there’s concrete action on tariffs. What’s more, policymakers in Frankfurt are optimistic that any fallout for prices would be limited, letting them continue with quarter-point rate cuts each time they convene.
“I am vigilant but not worried about inflation — including the effect of Mr. Trump’s policies,” Bank of France Governor Francois Villeroy de Galhau told Bloomberg Television’s Francine Lacqua. “There’s a plausible consensus that we will go on acting at each meeting, which we have successfully practiced since September.”
The ECB will probably lower borrowing costs by another quarter-point on Jan. 30, adding to four such moves last year that took the deposit rate to 3%. Investors and analysts see further steps in the months ahead, until the ECB reaches a level that neither constricts nor stimulates economic activity.
Most policymakers remain hesitant to offer predictions beyond the next two meetings, not least with much of Trump’s agenda still unclear. But crafting any kind of response with so much still unknown — including possible counter-measures by the EU and China — isn’t easy.
“The most difficult thing to calibrate is even the impact of tariffs because it depends very much on the reaction of third countries,” Spanish central-bank chief Jose Luis Escriva told Bloomberg TV. The ECB’s instruments to analyze the situation “are not sufficiently reliable,” he said.
Lagarde acknowledged that there’ll be “interesting phenomena” to watch, including exchange rates. But if tariffs on goods entering the US stoke prices there, it would mostly be a concern for the Federal Reserve, she said.