The European Central Bank (ECB) is sticking to its guns on reducing inflation to 2% this year, even as Donald Trump’s return to the White House raises new uncertainty over global trade and economic stability . Governing Council member Olli Rehn, speaking on Jan. 22 on behalf of the ECB, confirmed that monetary policy restrictions could end by mid-year, with inflation stabilizing as expected. He said, “Wars and trade policies are currently causing great uncertainty in the economy. However, global economic growth gradually strengthened during 2024, and moderate growth is expected to continue in 2025. The economic outlook for the Euro area remains subdued, although on the rise.” Rehn claimed that the ECB is keeping a close eye on inflation trends, core inflation dynamics, and the effectiveness of its policies. He pointed out that geopolitical tensions and trade disruptions remain major risks. “The threat of a trade war and the resulting disruption of international trade pose a risk of rising prices,” Rehn said, adding that global instability could further affect energy and transport costs. Interest rate cuts ripple through Europe The ECB has been gradually lowering interest rates to ease economic pressure, with its key rate dropping from 4% to 3% since June. Rehn said the ECB decided in December to continue cutting rates, with further reductions expected in the coming months. The effect of these rate cuts is already being felt across the Eurozone. The 12-month Euribor, a key reference for loans, has fallen to 2.5%, a drop of 1.7 percentage points since its peak in late 2023. This has reduced borrowing costs for households and businesses, particularly in Finland, where variable-rate loans tied to Euribor are more common than in many other Eurozone nations. Rehn believed that this trend supports economic growth and eases financial burdens. “It is important to maintain freedom of action in monetary policy decision-making,” he said. “We should have more information about U.S. trade policy and other economic decisions in the coming weeks.” Trump’s trade threats loom large Donald Trump’s return to the White House has rekindled fears of a trade war between the U.S. and the European Union. In a Truth Social post on Jan. 22nd, Trump described the EU as “very, very bad” for U.S. trade, triggering concerns about potential tariffs on European goods. Measures like this could have huge implications for Eurozone economies, including Finland, where exports to the U.S. account for 13% of total trade. Economists at the Bank of Finland estimate that U.S. tariffs on goods imports could reduce Finland’s GDP growth by 0.5 percentage points in 2025. Finnish exports, which are heavily concentrated in investment goods and intermediate products, are particularly vulnerable. In a Jan. 21st interview with Bloomberg, Christine Lagarde, President of the ECB, acknowledged the risks but emphasized that the bank will not react to rhetoric alone. “We are not overly concerned by the sort of export of inflation,” she said, adding that the ECB remains focused on its inflation target. Lagarde also pointed out that any immediate price effects from U.S. tariffs would primarily affect the Federal Reserve. Spanish central bank chief José Luis Escrivá shares these sentiments, describing the difficulty of predicting the sheer impact of tariffs. “The most difficult thing to calibrate is even the impact of tariffs because it depends very much on the reaction of third countries,” he said. However, according to Rehn, “The ECB’s monetary policy has been relatively successful in containing inflation, and inflation is now stabilizing at the 2% target. On the other hand, we have no reason to be overly satisfied. Economic growth is subdued, and productivity growth has been slow.” From Zero to Web3 Pro: Your 90-Day Career Launch Plan
