The European Central Bank cut interest rates on Thursday as policymakers grappled with heightened economic uncertainty, particularly from President Trump’s chaotic trade policies, that is expected to weaken the region’s economy.
Policymakers, who set rates for the 20 countries that use the euro, lowered their key rate a quarter point to 2.25 percent. It was the seventh consecutive cut since June as the economic outlook has darkened and inflation has slowed.
The region faces the dual challenges of tariffs on goods sent to the United States and diminished demand for exports to other countries as trade uncertainty weighs on the global economy. Europe’s largest economy, Germany, is heavily oriented toward exports.
“The economic outlook is clouded by exceptional uncertainty,” Christine Lagarde, the president of the central bank, said on Thursday at a news conference in Frankfurt, adding that all members of the bank’s Governing Council unanimously agreed to the rate cut.
Mr. Trump has raised tariffs on nearly all imports to the United States from most countries to 10 percent, increasing the specter of a global trade war. There are also higher tariffs on certain goods like cars and steel, while a trade war with China has pushed import levies between each country above 100 percent.
There is still the threat that higher tariffs will once again be imposed on dozens of countries after Mr. Trump’s 90-day pause on reciprocal tariffs expires. The Trump administration is negotiating with countries, but the European Union could face a 20 percent tariff again.
“The euro area economy has been building up some resilience against global shocks, but the outlook for growth has deteriorated owing to rising trade tensions,” Ms. Lagarde said.
The view of Europe’s economy has shifted quickly. A month ago, traders were evenly split on whether eurozone policymakers would hold or cut rates. Around then, policymakers noted that increased European fiscal spending, particularly on defense, could support the economy and that consumer spending should pick up because of lower inflation.
But that optimism has rapidly given ways to fears that the region is at risk of recession if economic uncertainty suppresses business investment and consumer spending.
Policymakers said on Thursday that it was very likely that confidence among businesses and households would fall, while the volatile market response to the trade tensions would probably tighten financing conditions, which could make it harder to get access to loans. “These factors may further weigh on the economic outlook for the euro area,” Ms. Lagarde said.
Lawmakers in some countries, like Italy and Spain, are trying to shield companies from the trade war with additional government spending. But economists still cut their growth forecasts for the region. Traders have increased their bets on how many times the central bank will lower rates this year, raising the chances of three more cuts.
The inflationary impact of higher tariffs is still unclear because of opposing forces, policymakers said. Escalating trade tensions could lead to a weaker euro, more expensive imports and upward pressure on inflation. Or lower demand for exports and cheaper goods redirected to Europe from the United States could put downward pressure on inflation.
But analysts say there is growing evidence that higher tariffs will decrease pressure on European prices rather than raise them, at least in the short term.
“The sharp fall in commodity prices combined with the strong appreciation of the euro is likely to send eurozone inflation below 2 percent,” Angel Talavera, the head of European economics at Oxford Economics, wrote in a research note this week.
The annual inflation rate in the eurozone averaged 2.2 in March, down from 2.3 percent in February. Inflation in the services sector, which had been sticky, slowed to 3.5 percent, the lowest since mid-2022.
Given the expectations that slower inflation will continue, “there is no need for the E.C.B. to be so hesitant,” Natasha May, an analyst at JPMorgan Asset Management, wrote in a note. Rates should be taken below their neutral level, where they neither restrict nor bolster the economy, she added.
Just a few hours before the E.C.B.’s announcement, Mr. Trump chastised Jerome H. Powell, the chair of the Federal Reserve, for not cutting U.S. interest rates further, even though there are greater concerns about rising inflation in the United States than there are in the European Union. Citing the E.C.B.’s policy meeting, Mr. Trump wrote on Truth Social that Mr. Powell’s “termination cannot come fast enough!”
In response to questions about whether the Fed’s independence was at risk and if that could affect international collaboration between central banks that are particularly important in times of financial crisis, Ms. Lagarde sought to provide reassurance, saying that there is a “steady, solid” relationship between central bankers that she expected to continue.
Mr. Trump’s rebuke of the Fed chair is just one of many ways the president has stepped out of the bounds of traditional economic policy. On Thursday, Ms. Lagarde said that European policymakers not only needed to deal with uncertainty, but also the unpredictability and “incredulity” of how trade relations were being handled.
But, she said, there are also opportunities for Europe, and she urged lawmakers to make changes to improve the competitiveness of the region.
In recent weeks, the euro has strengthened against the dollar as investors have questioned the safe haven status of U.S. assets. “Investor sentiment has proven more resilient towards the euro area than towards other economies,” Ms Lagarde said.
Eshe Nelson is a reporter based in London, covering economics and business news for The New York Times.
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