Europe, U.S. Central Banks Have Taken Different Paths In Trump Era

In 2025, the European Central Bank and its American counterpart have taken starkly different approaches to monetary policy.

The ECB has continued to slash interest rates, while the Fed has held them steady. The diverging paths came into focus more sharply this week as President Donald Trump criticized the Fed on Monday for not acting similarly to its European counterpart.

The ECB lowered its benchmark rate by a quarter point last week, the seventh decrease since June. By contrast, Federal Reserve Chair Jerome Powell made public comments the same day, suggesting U.S. central bankers are in no hurry to cut the key federal funds rate.

The Fed has cut its rate by 1 percentage point from its peak last year, and held it steady since December, while the ECB has lowered its own by 1.75 percentage points.

Powell’s remarks elicited a response from President Donald Trump, who said the economy will slow unless the chair steers central bankers toward cutting their own benchmark rate.

“Europe has already ‘lowered’ seven times,” he wrote in a post on Truth Social. “Powell has always been ‘too late.'”

Tariffs Make the Difference, Economists Say

However, economists said the difference was mainly caused by Trump’s own policies, especially his sprawling and unpredictable campaign of tariffs on trading partners. In the years leading up to the tariffs, the two central banks largely moved in tandem, reacting to similar economic currents.

Forecasters and investors widely expect the tariffs to push up the cost of living in the U.S., making Fed officials reluctant to cut interest rates for fear of reigniting inflation. European officials, meanwhile, are more concerned with an economic slowdown, especially since the tariffs could hurt exports to the U.S.

“Every central bank is dealing with the complications arising from the trade war, a six-sigma event,” wrote Douglas Porter, chief economist at BMO Capital Markets, in a note Thursday. “The response to the tariff uncertainty varies depending on how sensitive the economy is to U.S. trade, and the respective starting points for growth and inflation.”

Ernie Tedeschi, director of economics at the Budget Lab at Yale, emphasized the specific differences between the U.S. and its European counterparts in a post on social media platform X, referring to President Trump’s seeming resurrection of 19th-century-style mercantilist economic policies.

“Europe didn’t raise their tariffs to Gilded Age levels, so they’re not facing the price pressure the Fed is,” he said.

Update, April 21, 2025: This article has been updated to include new comments from President Donald Trump on Monday.