ECB Urged to Cut Rates Aggressively Amid Global Trade Turmoil

As Donald Trump’s unpredictable tariff policies deepen global trade uncertainty, pressure mounts on the European Central Bank to act decisively. With euro zone growth already fragile and inflation risks overblown, analysts say now is the time for the ECB to push through a bold rate cut and counteract recessionary threats.

The global trade landscape is once again on shaky ground, and this time, the European Central Bank may be the institution forced to make the next big move. With euro zone growth stagnating and the United States throwing curveballs through erratic tariff decisions, pressure is mounting on the ECB to abandon its cautious stance and respond with bold monetary easing.

U.S. President Donald Trump’s surprise decision on April 2 to delay the full implementation of his so-called “reciprocal tariffs” may have spared Europe the worst, but it didn’t neutralize the threat. A 10 percent tariff on European exports to the U.S. is still moving forward, a move that could erode what little economic momentum the euro zone has left. Analysts estimate that the tariff could shave off up to 0.3 percentage points from GDP growth, which was already projected at a meager 0.9 percent this year. That potential blow, combined with lingering uncertainty and weak domestic demand, has turned what was once a divided debate into an urgent policy dilemma.

Up to now, ECB President Christine Lagarde has carefully avoided committing to any immediate rate cut, despite a slowing economy and subdued inflation. The ECB’s key deposit rate currently stands at 2.5 percent, after a series of six cuts since June last year. But with Trump’s latest tariff move throwing global markets into a new phase of unpredictability, even the most conservative forecasts are shifting. A Reuters poll conducted between April 7 and 9 found that 61 out of 71 economists now expect a rate cut at the ECB’s April 17 meeting, with most predicting a modest 25 basis point reduction.

Still, a growing chorus of economists argues that such a move would be too little, too late. If the ECB wants to preserve its credibility and get ahead of the storm, they say, it needs to go further — perhaps as far as a 50 basis point cut. The rationale isn’t just the hit to growth; it’s the rising cost of hesitation.

One concern often raised against rate cuts is inflation — that slashing rates could overheat the economy. But in this case, inflation fears seem misplaced. The current forecast for euro zone inflation in 2026 is 1.9 percent, just under the ECB’s target. Moreover, the European response to Trump’s tariffs has been notably restrained. Without a robust retaliation, inflationary pressures are unlikely to materialize. If anything, Europe could face the opposite problem. With China still weighed down by steep U.S. tariffs, Chinese exporters may redirect their surplus goods to Europe, pushing down prices even further. That scenario would place additional downward pressure on inflation, reinforcing the case for rate cuts.

There’s also the euro’s strength to consider. Since Trump’s inauguration, the common currency has appreciated about 10 percent against the U.S. dollar. A stronger euro makes imports cheaper, further tamping down inflation and tightening financial conditions in a region that desperately needs stimulus. In other words, the macro signals all point in one direction: loosen now, or risk deeper stagnation.

But the situation is complicated by the ECB’s ongoing balance sheet reduction. Since ending its quantitative easing program in 2022, the bank has gradually allowed its €2.7 trillion bond portfolio to run off — a process known as quantitative tightening. This move increases long-term borrowing costs by pushing up bond yields, counteracting the impact of rate cuts. ECB executive board member Piero Cipollone recently pointed out that every €500 billion reduction in the balance sheet equates to about €75 billion less in bank lending. This means that a modest 25 basis point cut could easily be offset by the tightening effects already baked into the ECB’s operations.

There’s also the matter of fiscal policy — or the lack thereof. While Germany has signaled a departure from its traditional budgetary discipline, promising to increase defense and infrastructure spending, those plans are still in early stages. As AXA Chief Economist Gilles Moec put it, “Tariffs are now, fiscal stimulus later.” Monetary policy, in contrast, can act swiftly — and right now, speed matters.

The ECB’s credibility is on the line. The bank has already cut rates by 150 basis points since mid-2024, but markets remain skeptical that those moves will be enough to fend off recession. A half-hearted rate cut in April might placate the cautious voices, but it won’t inspire confidence. With inflation stable, growth faltering, and uncertainty on the rise, the ECB has both the justification and the opportunity to act decisively. A 50 basis point cut would send a strong signal that the central bank understands the stakes — and is willing to lead rather than lag.

Global trade has become a volatile game of political brinkmanship, and Europe can no longer afford to play defense. By doubling down on monetary easing, the ECB can buy time for fiscal policy to catch up, restore confidence in the eurozone economy, and show the world that it won’t be paralyzed by uncertainty. In this high-risk environment, boldness may be the ECB’s safest bet.