The European Central Bank will cut interest rates at its next four meetings as the economic costs of US tariffs mount, according to analysts at JPMorgan Chase.
Euro-zone growth will take a bigger hit than previously expected in the near term, resulting in “very weak” expansion over the next three quarters, Greg Fuzesi, Raphael Brun-Aguerre and Mariana Monteiro said Tuesday in a research note.
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“For the ECB, it is relevant that inflation was already set to return to target and that any further shock creates the risk of an undershoot,” they said. “The global environment will feel very difficult in the coming months.”
The ECB has lowered rates six times since June. Four more moves would take the deposit rate to 1.5%, and JPMorgan even sees the risks to this outcome as skewed to the downside. In a Bloomberg survey last month, economists predicted that borrowing costs would only fall to 2%.
Most policymakers have refrained from saying where rates may settle given elevated uncertainty. But expectations for further reductions have built after US President Donald Trump's tariff announcement, with Societe Generale economist Anatoli Annenkov saying earlier Tuesday that an outsized half-point move next week can't be excluded.
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