At different speeds in their reduction, the US Federal Bank (Fed) and the European Central Bank ( ) move in 2025 as the American economy is on a different path from that of the eurozone. Last Wednesday (29.1.2025), the Fed maintained its basic interest rate unchanged in the range 4.25% to 4.5%, after three successive reductions that reduced loan costs by one percentage point and on the other the ECB reduced its basic interest rates for the fifth time by 25 μb. CORVERSE The president of the Fed, Jerome Powell, advised that there is no study to further reduce interest rates. The American economy, he said, is strong and a prerequisite for continuing their decline is to make substantial progress in deescalating inflation, which was running at an annual rate of 2.9% in December. At the same time, he left, indirectly but clearly, to suggest that before any other move, the policies of the new government should be specialised. Trump and particularly trade and customs, as the prospects for inflation could be affected. With the independence of the regulated one, Fed ignored President Donald Trump’s “requirement” to reduce interest rates, with its president confirming that it would continue to act on the basis of the analysis of economic data. Fed officials had already sent in December, after Trump’s election victory, a signal for a slower interest rate reduction in 2025, predicting two just such moves this year, from 25 basis points (a quarter of a percentage point) each. One day after the Fed the ECB met and reduced, as expected by analysts and markets, for the fifth time its basic interest rates by 25 p.b. The deposit rate is now set at 2.75% and as emerges from Christine Lagarde’s press conference, the reduction course will continue as there is confidence that inflation, running in December at an annual rate of 2.4%, will fall to the 2% target within 2025. CORVERSE Lagarde avoided, as in previous times, predicting the level that interest rates will eventually be formed, noting that amid the great uncertainty that exists (geopolitan developments, threats to customs) there cannot be a guidance, The decisions, he added, will be taken at each meeting on the basis of the available data on the economy and in particular on inflation prospects. Information from Reuters reported that there is a consensus in the ECB Board on a new reduction in the deposit rate in March to 2.5%, thus approaching the level of interest considered “neutral”, i.e. that neither strengthens nor limits economic activity. This interest rate can only be assessed and based on a recent ECB survey ranges from 1.75% to 2.5%. It is possible that discussions will begin at the ECB from the March meeting to reach a consensus on the level of neutral interest rates. The ECB’s objective is first to reach the neutral interest rate, which members of its Board, such as the Governor of the Bank of Greece, Giannis Stournaras, estimate to be close to 2%. At the same time, a new assessment by ECB officials is expected in February of the level of neutral interest rate. The ECB could go further down the interest rate, i.e. lower than the neutral interest rate, depending on the general situation of the economy, as Lagard meant on Thursday (30.1.2025). According to analysts, such a possibility would be more likely in the event of a new deterioration in the Eurozone economy following a possible US imposition of duties. In such a case there would be a need for even lower interest rates that would enable the economy to recover. The President of the ECB said that growth is facing frontal winds, as was shown by the GDP figures of the fourth quarter that showed that euro area GDP remained stagnant. He appeared optimistic about improving the situation this year, but also putting an asterisk on Trump’s tariff policy, which nobody yet knows exactly what it will be.
Different rates in interest rates from ECB and Fed in 2025
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