MARKET NEWS

The European Central Bank is set to lower interest rates for an eighth time as President Donald Trump’s jolts to global trade dim the prospects for inflation and the economy.

The deposit rate will be cut by a quarter-point to 2% on Thursday, according to all analysts surveyed by Bloomberg. Another reduction is expected in September, when talks with the US should have concluded and fresh forecasts will reveal the tariffs’ full implications.

Projections will also guide policymakers this week, though the constantly changing threats from across the Atlantic complicate the task of those compiling them. While growth and inflation will probably be weaker in the months ahead, hefty European military and infrastructure outlays could drive both higher in the longer term.

“The ECB finds itself in a difficult position,” said Jari Stehn, chief European economist at Goldman Sachs, who alongside trade cites the lack of concrete details on fiscal stimulus. “All of this makes it challenging to properly calibrate monetary policy.”

That’s likely to leave ECB President Christine Lagarde unable to offer clear signals on where rates may go after June. Her press conference is scheduled for 2:45 pm in Frankfurt — 30 minutes after the ECB’s rate announcement.

Underscoring the rapidly shifting global waters through which the ECB must navigate, Thursday will also see German Chancellor Friedrich Merz discuss trade with Trump in the White House, while NATO defense ministers will debate higher spending targets and support for Ukraine.

Interest Rates

Policymakers from across the hawk-dove spectrum have signaled they’re nearly done lowering borrowing costs, with some openly discussing slowing the pace of easing.

Governing Council member Fabio Panetta said last week that disinflation “is now close to completion.” The remarks may point to a tweak to the language in the ECB’s policy statement, as well as a pause in July.

Economists already expect officials to take a break next month. But they also warn that the ECB can’t afford too long a timeout, or markets will conclude it’s done cutting altogether. Almost 30% of analysts in a recent poll say the Governing Council can skip just once before that happens, while a quarter reckon it can sit out two meetings.

Traders are betting there’ll be one more move after a likely pause in July, taking the deposit rate to 1.75%. That’s at the lower end of a range that the ECB defines at neutral, neither stimulating nor restricting the economy.

Economic Projections

Analysts in a Bloomberg poll predict the ECB will largely confirm its previous projections, even as the economic backdrop has fundamentally changed due to Trump’s efforts to reorder global trade.

The euro is significantly stronger than in March and energy is cheaper, putting downward pressure on prices this year and offering some relief to firms set to suffer from weaker demand.