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Trump tariffs are making rate path ‘more complicated’

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ECB's Pierre Wunsch: Trump's tariffs will impact interest rates in Europe

U.S. President Donald Trump’s tariff policies are making the path ahead for European Central Bank interest rates “more complicated,” according to Pierre Wunsch, member of the ECB’s Governing Council.

“We were going in the right direction. And I was actually quite relaxed,” he told CNBC’s Karen Tso on Thursday on the sidelines of the IIF Europe Summit in Brussels.

“If we forget tariffs …. we were going in the right direction. Then the question was more a question of fine tuning of the pace of cuts and where we land,” Wunsch said. “I was like, you know, inflation might be the boring part of [20]25, and [20]25 is not a boring year. But if you add tariffs to the equation, it’s becoming more complicated,” he said.

Wunsch, who is also the Governor of the National Bank of Belgium, said tariffs would be “bad for growth” and “probably” inflationary, but noted that the exact impact remains uncertain and will depend any potential retaliation and on how exchange rates react to duties.

His comments come a day after Trump announced 25% tariffs on all cars “not made in the United States,” effective as of April 2. In a post on Truth Social, Trump on Thursday also threatened to place “far larger” tariffs on the European Union and Canada if they were to work together to resist duties from the U.S.

These are just the latest developments in Trump’s trade policy turmoil, which has seen a slew of tariffs announced — and at times postponed, amended or abolished, as negotiations and counter measures have also come into play.

April 2 is set to be a key date for a wide range of duties to come into effect, although recent comments from Trump and his administration have signaled that adjustments could be made and the duties could be more lenient than originally indicated.

Interest rate decisions ahead

The ECB will make its next interest rate decision on April 17 soon after the tariffs are scheduled to come into effect. Markets were last pricing in a roughly 79% chance of a 25-basis-point interest rate cut from the ECB next month, according to LSEG data.

By then, Wunsch said the central bank could have a rough idea of the impact of tariffs, which could influence the ECB’s decision making. However, he said he “wouldn’t put too much focus on April,” as trade policy would have a medium-term impact.

The central banker on Thursday left the door open for all possible actions from the ECB regarding interest rates — further cuts, a hike, or a pause.

“I think the likelihood is still limited that we would have to hike, but there might be a case for a pause,” he said.

“If tariffs have an inflationary impact and a negative impact on growth, it’s going to be a difficult equation, and we might have to consider a pause. I’m not pleading for one, but I think it should be part of the discussion,” he said.

Economics

DOGE comes for the data wonks

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FOR NEARLY three decades the federal government has painstakingly surveyed tens of thousands of Americans each year about their health. Door-knockers collect data on the financial toll of chronic conditions like obesity and asthma, and probe the exact doses of medications sufferers take. The result, known as the Medical Expenditure Panel Survey (MEPS), is the single most comprehensive, nationally representative portrait of American health care, a balkanised and unwieldy $5trn industry that accounts for some 17% of GDP.

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Economics

Checks and Balance newsletter: Who is (or was) the smartest person in government?

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Checks and Balance newsletter: Who is (or was) the smartest person in government?

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Economics

Consumer sentiment worsens as inflation fears grow, University of Michigan survey shows

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A shopper pays with a credit card at the farmer’s market in San Francisco, California, US, on Thursday, March 27, 2025. 

Bloomberg | Bloomberg | Getty Images

The deterioration in consumer sentiment was even worse than anticipated in March as worries over inflation intensified, according to a University of Michigan survey released Friday.

The final version of the university’s closely watched Survey of Consumers showed a reading of 57.0 for the month, down 11.9% from February and 28.2% from a year ago. Economists surveyed by Dow Jones had been expecting 57.9, which was the mid-month level.

It was the third consecutive decrease and stretched across party lines and income groups, survey director Joanne Hsu said.

“Consumers continue to worry about the potential for pain amid ongoing economic policy developments,” she said.

In addition to worries about the current state of affairs, the survey’s index of consumer expectations tumbled to 52.6, down 17.8% from a month ago and 32% for the same period in 2024.

Inflation fears drove much of the downturn. Respondents expect inflation a year from now to run at a 5% rate, up 0.1 percentage point from the mid-month reading and a 0.7 percentage point acceleration from February. At the five-year horizon, the outlook now is for 4.1%, the first time the survey has had a reading above 4% since February 1993.

Economists worry that President Donald Trump’s tariff plans will spur more inflation, possibly curtailing the Federal Reserve from further interest rate cuts.

The report came the same day that the Commerce Department said the core inflation rate increased to 2.8% in February, after a 0.4% monthly gain that was the biggest move since January 2024.

The latest results also reflect worries over the labor market, with the level of consumers expecting the unemployment rate to rise at the highest level since 2009.

Stocks took a hit after the university’s survey was released, with the Dow Jones Industrial Average trading more than 500 points lower.

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