Markets Brace for ECB Rate Cuts Amid Global Tariff Turmoil

The European Central Bank is set to implement rate cuts in response to market volatility triggered by U.S. tariffs. Economists predict these measures will outweigh inflationary effects of EU counter-tariffs. The ECB might use unconventional tools if the situation worsens, but for now, rate cuts are prioritized.

The European Central Bank (ECB) is gearing up for another rate cut next week as global markets reel from the impact of tariffs imposed by U.S. President Donald Trump. The tariffs are causing an economic slowdown that is overshadowing inflationary responses from the EU, economists suggest.

German bond yields dropped as expectations for nearly two rate cuts in the ECB's upcoming meetings grow. This market turbulence increases the likelihood of a recession, which might shift the ECB's focus from managing inflation, now persistently above target, to supporting economic growth.

Prominent ECB policymakers have largely reached a consensus on the need for policy easing, expressing concerns about the impact of tariffs on growth. There remains debate on whether the inflationary effects of these tariffs are underestimated, but rate cuts remain the central tool under consideration.

(With inputs from agencies.)