Why is the ECB lowering rates but the FED isn't?

[takuma sato]

The ECB lowered their rates by 25bps yesterday and they are now nearing 2%, so this means that savings are barely paying anything above inflation, if we assume the inflation levels to be real, which are around 2%. This that you are losing money by keeping your capital on money market funds at this point, which incentivizes risk off assets, since investors may be forced to take on such risk if they want to make any money.

Meanwhile the FED continues to have rates above inflation, so anyone with a couple million can just chill on money market funds, deposits and so on, and get an income with no risk taking. This does not incentivize people to invest and does not incentivize people to get a mortgage to buy a house since rates are expected to fall, they just don't for now.

So why is the ECB lowering rates before the FED? It used to be that the FED lead and the rest of the world pretty much followed on it. Now the FED is lagging. Is it because they are scared of a second wave of inflation? Why else wouldn't they lower rates at this point? Assuming the economy is doing well, it wouldn't be a panic cut, it would just be lowering rates because the inflation goal is being achieved, but they aren't in a hurry yet. So what does this signal? It signals that the economy is doing good and lowering rates isn't needed? That's how I read it.

[Don Pedro Dinero]

The Fed seems to be a personal tug of war between the Fed chairman and Trump, but two rate cuts are expected this year, although not at the pace Trump would like. The ECB doesn't have that problem, it will print as much money as it can to make the arms dealers rich while the people poorer and with worse services.

[DeathAngel]

Seems Powell is having an alpha male competition with Trump. He doesn’t think rates need lowering, Trump does. We will see who blinks first but I read Trump is exploring possibilities to relieve Powell from his duties. Historically the FED always seems to act too late. I think Powell should cut rates, it will make life cheaper for Americans.

[franky1]

EU is getting flooded with discounted goods from asia, offering business opportunity for profit in the EU thus the sentiment is good economy in the EU
US even if its saying that US will show treasury excess/surplus funds at next budget due to doge. however due to tariff war its getting bad sentiment of economy

so US is in different position that the EU

[cabron]

Cutting rates would make sense if they are to reduce the inflation. ECB prioritized its people, they seem to have the clearer mind in making European lives lighter.

Trump wants to fire Jerome Powell recently because of not cutting rates, it was in the news recently. Although I'm not sure if its real but there are speculations that FED will be bailing out markets soon. If not then maybe Trump will really abolish the FED, or so some people are promoting.

[Fiatless]

Seems Powell is having an alpha male competition with Trump. He doesn’t think rates need lowering, Trump does. We will see who blinks first but I read Trump is exploring possibilities to relieve Powell from his duties. Historically the FED always seems to act too late. I think Powell should cut rates, it will make life cheaper for Americans.

How would Trump expect an interest rate cut when it's making the economy unpredictable with his unstable tarrif policies. Trump knows what to do to stabilize the economy, ditch this unnecessary tarrif war. Sacking Powell will be a complicated process that might require legislative approval. I also want the FEDs to cut rates because it usually affects the crypto industry positively.

[kotajikikox]

So why is the ECB lowering rates before the FED?

Europe and US are in different positions. They have different economic situations that allows one or the other to make decisions the way that they are doing now. Basically they have different problems to prioritize.

ECB is not that concerned about inflation but rather growth.

Is it because they are scared of a second wave of inflation?

Yes they are basically scared that by cutting rates there will a much long lasting impact of inflation. They are saying that they are waiting for a greater clarity before they make any decision that could have too much affect.

[coupable]

Seems Powell is having an alpha male competition with Trump. He doesn’t think rates need lowering, Trump does. We will see who blinks first but I read Trump is exploring possibilities to relieve Powell from his duties. Historically the FED always seems to act too late. I think Powell should cut rates, it will make life cheaper for Americans.

I believe the exact opposite. Both men agree on the same strategy, even if they differ on the methodology for achieving it.
Recently, after the announcement of the tariff increase and then the subsequent suspension of these decisions on the same day, I read in the news that Powell was the one who initiated the 90-day suspension with the aim of pushing the countries targeted by the tariffs to the negotiating table, where they would be forced to make concessions.

Despite the current chaos in the US administration, and despite Trump's arrogance, even against his own administration team, all the elements are moving in perfect harmony, as if someone is pulling the strings behind the scenes.

[takuma sato]

Seems Powell is having an alpha male competition with Trump. He doesn’t think rates need lowering, Trump does. We will see who blinks first but I read Trump is exploring possibilities to relieve Powell from his duties. Historically the FED always seems to act too late. I think Powell should cut rates, it will make life cheaper for Americans.

I don't think it's a good idea for Trump to actually fire Powell. I know he can't do it in theory, but in practice he may have a way to get him out creating the necessary political demand for lower rates. So this puts Powell in a tricky situation: If he cuts, will he be cutting because of real conviction based on the data they are monitoring, or it will be due Trump pushing the tariff thing in order to cause US10Y go up and thus force Powell to cut so they can buy back the debt to lower yields? But that would make it easy for Powell to lower rates too, it would give him an excuse... there's so many dynamics in this thing that is hard to tell what's going on. But what I think it's clear is if Trump pushes his hand too much and looks like a dictator running the FED and actually somehow fires Powell, the market is going to tank another 10 to 20%.

[fillippone]

The ECB has a single mandate: it targets inflation only. So, it must use monetary policy to achieve a 2% inflation growth rate.
The Fed has a dual mandate: inflation and growth. As inflation has not been tamed yet, the Fed cannot lower its rates.

[SilverCryptoBullet]

The ECB has a single mandate: it targets inflation only. So, it must use monetary policy to achieve a 2% inflation growth rate.
The Fed has a dual mandate: inflation and growth. As inflation has not been tamed yet, the Fed cannot lower its rates.

Their mandates can be different, their policies can be different but citizens have same consequence. Inflation, decrease of purchasing power of fiat currencies, recession and they have been more struggling in life since Pandemic Covid-19.

FED and ECB and those nations have one common practice, they would like to soften the severity of global and national recession by using terms like: Soft landing, technical recession.

Citizens even don't mind about those academic distorted terms, because they truly feel recession effects by themselves daily.

[Iranus]

How would Trump expect an interest rate cut when it's making the economy unpredictable with his unstable tarrif policies. Trump knows what to do to stabilize the economy, ditch this unnecessary tarrif war. Sacking Powell will be a complicated process that might require legislative approval. I also want the FEDs to cut rates because it usually affects the crypto industry positively.

Trump is the one who made the economy worse through his tariff war, but he blames Powell for being slow to lower interest rates and causing the economy to stagnate. This is really ridiculous.

He has no authority to interfere in the Fed's internal affairs, he can only do so if he can convince the Supreme Court, but that is an impossible task. Not to mention, firing Powell would have many serious consequences, especially causing the world to lose confidence in the USD. So the Supreme Court and Congress will never let that happen.

If there was no trade war, I think the Fed would have cut rates because both CPI and core CPI have fallen more than expected in recent months.



Image source: x.com

[slapper]

The old model, "Fed moves, world follows," is breaking down. Not because the Fed lost its crown but because the world economy is no more a monolith. The ECB is looking at more than just inflation; it's also trying to stop a domino collapse of confidence in a bloc already struggling with internal fragility, broken fiscal cohesiveness, and a trade war from a purported ally.

Lagarde pushed the lever because waiting costs more than a premature easing, not because it's ideal. Her cut is more like a shield than a stimulus.

Powell's in a relative strength situation: jobs holding, core inflation sticky, MMFs making retail savers complacent. America cannot afford inexpensive debt, though. Literally. U.S. interest payments will soon surpass military expenditure. You cut rates now and that fiscal imbalance could spiral into fiscal dominance.

Why then is the Fed holding? Because inflation is only half the monster. Sovereign debt risk makes up the remaining half. Tey's contain something ECB does not even have the privilege to confront yet.

In short: ECB is reacting to external pressure. The Fed is bracing for internal combustion.

Two empires, two timelines, same storm, different vessels.

[justdimin]

The old model, "Fed moves, world follows," is breaking down. Not because the Fed lost its crown but because the world economy is no more a monolith. The ECB is looking at more than just inflation; it's also trying to stop a domino collapse of confidence in a bloc already struggling with internal fragility, broken fiscal cohesiveness, and a trade war from a purported ally.

This is mainly true. Europe has never been fan of chasing after a mistake, so they let it rip, like a bandaid, if it is going to get worse then let it get worse first, and they will just make whatever damage it can make, and then they will look to fix it, this way, they are not barely surviving, but crashing early to make sure recovery is quicker too. If you wait a few more years, and then crash without your own input but because market went that way, then you have no package ready, this way ECB is ready.

USA on the other hand has that confidence in them that they can prevent it by keeping the rates same, and if they are right, then they are doing the correct thing of course, but if they are wrong then they have done this for nothing at all.

[asriloni]

ECB tries to braces US tariff by cutting its interest, while FED is in different kind of situation.

Also, i see nothing personal between Powell and Trump here. I really understand his decision not fulfilling Trump's wishes. He tries to hold the inflation by not decreasing the rates. He may be changing his mind if Trump does better to the US economic.

On other hand, i can't really blame Trump from requested Powell to cut the rate. I know he tried to decrease US's cost living, which was increasing quite a lot due to the all of his decisions.

It's so hard to solve this puzzle. The only thing that i understand Trump uses interest rate as his scapegoat.

[mindrust]

Powell is trying to show Trump that he is the real boss and that’s actually true. No matter how strong you are in congress, no matter how many vote you got, you are helpless unless you can get some of that cheap money which the FED prints. You see, Powell is the real president of the United States. He has the cards, not Trump.

He will eventually have to lower the rates though. He might have the cards, but is he the tough guy? When people lose their jobs because of Powell’s stubbornness, it won’t be pretty.

[takuma sato]

Powell is trying to show Trump that he is the real boss and that’s actually true. No matter how strong you are in congress, no matter how many vote you got, you are helpless unless you can get some of that cheap money which the FED prints. You see, Powell is the real president of the United States. He has the cards, not Trump.

He will eventually have to lower the raise though. He might have the cards, but is he the tough guy? When people lose their jobs because of Powell’s stubbornness, it won’t be pretty.

Well I think the data is pointing that the FED would be able to cut now. There is people that may turn on Powell, even inside the FED, and it may end up looking like he is doing that even if he isn't, and that would give Trump the cards on this argument about how the FED is political because the cut during the elections to help Kamala, but now refuse to cut because he is president. Inflation keeps going down, we are doing to 1.44% according to truflation data. So unless they know something that we don't, or unless they are just paranoid to cause a second wave of inflation, I don't get what Powell is doing, we will end up having deflation because they are too late to cut, and so you get tariffs + deflation recession which isn't great.

[Fortify]

The ECB lowered their rates by 25bps yesterday and they are now nearing 2%, so this means that savings are barely paying anything above inflation, if we assume the inflation levels to be real, which are around 2%. This that you are losing money by keeping your capital on money market funds at this point, which incentivizes risk off assets, since investors may be forced to take on such risk if they want to make any money.

Meanwhile the FED continues to have rates above inflation, so anyone with a couple million can just chill on money market funds, deposits and so on, and get an income with no risk taking. This does not incentivize people to invest and does not incentivize people to get a mortgage to buy a house since rates are expected to fall, they just don't for now.

So why is the ECB lowering rates before the FED? It used to be that the FED lead and the rest of the world pretty much followed on it. Now the FED is lagging. Is it because they are scared of a second wave of inflation? Why else wouldn't they lower rates at this point? Assuming the economy is doing well, it wouldn't be a panic cut, it would just be lowering rates because the inflation goal is being achieved, but they aren't in a hurry yet. So what does this signal? It signals that the economy is doing good and lowering rates isn't needed? That's how I read it.

All of these central banks are working on their own timelines and the economy of each country/countries is very different, you shouldn't expect them to be moving identically in tandem. Both of them are slowly ratcheting down interest rates, but really it's a good thing to keep them high - we went through a long period of record low rates which was an anomaly on the scale of history, it is more normal to have them 3%+ and it actually discourages reckless borrowing. The insane moves and erratic behavior of the US president makes it almost impossible to predict what will happen next, which makes the job of a central banker trying to decide where the interest rate should be infinitely more difficult. It's not a race like you seem to think it should be.

[Findingnemo]

The ECB has a single mandate: it targets inflation only. So, it must use monetary policy to achieve a 2% inflation growth rate.
The Fed has a dual mandate: inflation and growth. As inflation has not been tamed yet, the Fed cannot lower its rates.

Powel won't, and this stance will remain for at least one more year.

He might even increase it further to bring the recession, and that is the long-term way of seeing the inflation and also the strengthening the value of the dollar while attracting more foreign investments due to attractive returns.

[philipma1957]

The ECB has a single mandate: it targets inflation only. So, it must use monetary policy to achieve a 2% inflation growth rate.
The Fed has a dual mandate: inflation and growth. As inflation has not been tamed yet, the Fed cannot lower its rates.

once trump takes it over he will cut rates bigly and flood the market with cash.

his goal is to default on the debt . and stick china with the t bills it holds.

china sold some this year i suspect he will retroactively not honor them to whomever china sold them too.

he likely will accuse china of civil rights violations and exploiting it workers as the reason.

should be a very interesting mess to witness.