Not surprisingly, central bankers in the United States and Europe are increasingly preparing to lower interest rates. Consequently, the global economic order has entered an era of turmoil and unprecedented transformation among states. The U.S. Federal Reserve is currently very concerned about keeping its inflation rate at 2%. Over the next few months, it aims to lower borrowing costs by 0.25% twice in succession. The European Central Bank (ECB) is following this inflation target. It still intends to lower rates by 0.25% soon. These expected changes are happening against a backdrop of deepening unrest in capital markets sparked by recent trade policy actions.
The administration’s imposition of new tariffs on imports from China has already sent shockwaves through financial markets. In a historic first, the U.S. and such a country had just signed a deal. As a goodwill gesture, they will suspend high reciprocal tariffs for 90 days, lowering them to 10%. Our goal with this decision is to reduce tensions and alternatives and get the economic environment stabilized. More urgently, it directly counters the egregious distortions to global capital markets imposed by present policy agenda of the President of the United States to international trade.
Besides this price stability inflation target, one of the U.S. Federal Reserve’s monetary policy social objectives is to aim for full employment. New data are showing that the U.S. labor market is indeed weakening, making these objectives all the more challenging. In 1Q 2025, the U.S. GDP decreased by -0.3% quarter-over-quarter annualized. This unusual period of negative growth has led to alarm about the state of our nation’s economic course.
Closer to home, the Eurozone economy seems likely to be better able to stand up to a less accommodative stance from mon pol. The ECB’s anticipated rate cut aligns with its assessment that current economic conditions allow for such measures without exacerbating inflationary pressures. The situation is further complicated by Germany’s economic stimulus package and planned Eurozone-wide defense spending, which have yet to take effect but could influence future economic stability.
These latest developments have undoubtedly pushed the dangerous fiscal predicament of both the U.S. and Eurozone back into center stage. Rising defense spending alongside Germany’s infrastructure program has raised questions about fiscal sustainability and long-term economic growth within these regions.
The U.S. administration is moving at breakneck pace to negotiate trade agreements. They are hunkering down with their most critical partners first—especially the United Kingdom and China. These negotiations are vital for stabilizing trade relations and fostering economic growth, especially in light of recent tariff actions that have disrupted established trading patterns.