How the ECB will react to Trump’s economic policy

Alarm has meant to (ECB) the possible implementation of U.S. President’s intentions for increased duties. The staff of the ECB are preparing the next day’s strategy with their eyes on the announcements of economic policy that Trump will do as president after his inauguration on January 20th. The ECB is determined to move the interest rate policy directly to the extent, of course, that it needs to take immediate action and if that is the case, the announcements that will be made from the other side of the Atlantic are required. In any case, until then, the interest rate reduction will continue at the rate already discounted by the public positions of ECB President Christine Lagarde. Thus, once positive inflation has been confirmed, interest rates are expected to decrease by 25 basis points in December and perhaps another equal in January. From there on, the key factor in making decisions at Frankfurt staff will be, in addition to the inflation data, the economic policy announced by the new government in the US. Factors with knowledge of the procedures in Frankfurt anticipate the determination with which the ECB is prepared to act if a duty war is triggered by the US. This could lead to stagnation in the global economy and Europe. The increase in customs duties would lead to an increase in inflation and a reduction in exports with significant effects on growth. The European economy which relies heavily on exports would immediately feel the blow at a time when, in fact, it is developing weakly. The “hit” would be particularly painful for Germany where exports are the driving force of its economy and are already facing the risk of recession for the second consecutive year this year. If this adverse scenario is confirmed, as they carry well-informed European sources, the ECB will act with a faster reduction in its interest rates, regardless of the policy pursued by the FED, to give large amounts of cheap money to the European economy to cope with pressures. The ECB shall have the arsenal required for such extreme circumstances. He has proved it in the past when he had to manage the Greek crisis and also during the pandemic. Intense processes are also taking place in Brussels, at European government level after the outcome of the American elections. How to deal with the possibility of US duty increases on European products is one of the main issues in the consultations between Member States’ leaders. Information says the EU will not hesitate to respond with an increase in customs duties on American products if the US increases its own duties. Source: RES – ICM