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

[fuguebtc]

Powell won't do it, but Trump's new FED chairman will. Just wait until May 2026 to see this happen. Rate cuts are coming whenever we like them or not. That, combined with tariffs, will raise inflation all the way to the moon.

I'm beginning to think the US is on the brink of "hyperinflation". Meanwhile, China and the EU continue to grow without disruptions. They will strengthen economic ties, effectively leading us to a "New World Order". The ECB is cutting rates, while China is moving to other markets to keep its business afloat. Where does that leave the US? Alone, isolated from the rest of the world (America First). At least, that's how I see it. But I could be wrong. Maybe there's "light at the end of the tunnel"? I hope so. These are uncertain times, so anything's possible.

It is still uncertain whether Powell will be replaced by someone else (close to Trump). Because according to the US Constitution, the Senate is the body with the authority to decide who will be the chairman of the Fed ,  not Trump.

I don't like US dominance either but I don't think they will have hyperinflation or become so weak that they lose their superpower status in the near future .  A new world order is emerging and becoming more evident with the rise of BRICS and countries increasingly not wanting to depend on the US, but we need to accept the fact that they will still be the superpower in the next 1 or 2 decades .

[justdimin]

It would be hyper if the whole system collapsed but we presume they can arrest the fall of dollar etc.   Hyper would result if say California left USA or other large changes that put the debt into doubt and so currency problems resulted.    
  I believe vast inflation problems are more probable then we recognize because of how debt can slip into doubt and also raise costs with higher rates at the same time.   Federal reserve deliberately increased risk by decreasing the average term in the 1990's and ever since there has been a bad bias, hence a market over reaction can occur.

The worst part is, we are literally talking about Trump, double down on his mistakes. Tariffs are a mistake, and thankfully they are not active right now, but they will be and even the news of them made the costs go up and everything is more expensive. To prevent inflation, they should do better rates, make it higher, and that way the prices would go up but inflation wouldn't go up because we would have money taken out of the markets, making it more scarce, and mor evaluable again.

However, not only he doesn't make it up, but he is planning to take the rates down, even staying the same is understandable but we are not talking about that, we are talking about making go down. So if you do that, then you would have tariffs and rates going down, causing huge inflation. Still not hyper, but bad idea.

[slapper]

~

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.

This European tendency to "rip off the bandage early" goes back hundreds of years. That's how civilizations work. It comes from cycles of war, breakdown, and rebuilding. The ECB is designing for institutional continuity. Letting the hit land now gives them psychological power in the story of recovery. "We acted" instead of "we reacted" turns pain into political capital. Trying to time things just right doesn't work in a bloc where some nations have plenty of money to spend and others still carry the trauma of past austerity. Most of the time, getting things done early is more important than getting them perfect

~snip~
In short: ECB is reacting to external pressure. The Fed is bracing for internal combustion.
Two empires, two timelines, same storm, different vessels.

Perfectly defined - now it's just a question of whose storm will be stronger (last longer) and who will cope better in the rough seas. I find it hard to believe that the US wants to shoot itself in the knee, but when I see the relationship they have with their major partners, it seems to me that they will simply force many countries to look for solutions to their problems elsewhere.

I recently read an article that the number of visits from the EU to the US has decreased considerably - is the reason because people are starting to save money or is it simply a protest against the policies that the US is currently implementing?

The U.S. is not intentionally shooting itself. But it sure keeps piling on debt, stirring up trade fights, and making it harder for the world to trust its lead. They still thinks being indispensable is the same as being invulnerable. But in a world of multipolar drift and data-aware populations, partnerships aren’t loyalty-based anymore. They must be utility-based. If the U.S. becomes too unpredictable, even allies start hedging

Your observation on declining EU-U.S. visits could be part economic caution, could be part geopolitical chill, or maybe just a quiet cultural shift: “we’re not inspired right now”. In diplomacy, absence is also a message

The U.S. might believe it's projecting strength by staying tight on rates and tariffs. But others see inflexibility, not strategy

[Stella Mese]

It is still uncertain whether Powell will be replaced by someone else (close to Trump). Because according to the US Constitution, the Senate is the body with the authority to decide who will be the chairman of the Fed ,  not Trump.

I don't like US dominance either but I don't think they will have hyperinflation or become so weak that they lose their superpower status in the near future .  A new world order is emerging and becoming more evident with the rise of BRICS and countries increasingly not wanting to depend on the US, but we need to accept the fact that they will still be the superpower in the next 1 or 2 decades .

that is something that can not be denied anymore because the US is still a superpower, and to shift it requires hard work, especially BRICS which will actually compete with it, but all is not as easy as expected, but all about the function of the economic order that occurs, and Hyperinflation could approach the US even though the past few months have subsided but now it has shown signs of rising again after tariffs will increase inflation.

[Abiky]

"Hyper" part seems a bit like we are making this bigger than it should be. At the very very worst case, I would assume 20% would be the key here, nothing more. I know that we are going to make some bigger changes eventually, like the whole nation will have to increase the rates again and live on a very "help me" state from the government, like ask for handouts again, printed money, non-recoverable damages etc etc. But it still wouldn't be 100% or more.

And to call it hyper inflation, we need to have something large like that, otherwise it makes no sense to call it hyper. If inflation is even 20% that is terrible and that is of course bad for USA because they are not used to those and when that does happen, their entire infrastructure is not ready for it and takes time to recover. But that still isn't hyperinflation.

Either way, the FED's proposed 2% inflation target would be far from becoming a reality anytime soon. Not with "Reciprocal Tariffs" in play. Especially the 145% tariff on goods imported from China. At this point, having such low inflation is impossible. The US will be in a much worse economic situation than the EU. Just wait and see.

Why do you think the ECB continues to cut rates? Because it wants to stimulate the economy. The FED will have no choice but to keep rates as is (possible stagflation) or raise them. There will be no economic stimulus of any kind under such circumstances. But I could be wrong. The clock is ticking for the US, so it better put the economy back on its feet or else. Who knows? Maybe China, the EU, or BRICS will take over the world soon. These are uncertain times, so anything's possible.

[fillippone]

Either way, the FED's proposed 2% inflation target would be far from becoming a reality anytime soon. Not with "Reciprocal Tariffs" in play. Especially the 145% tariff on goods imported from China. At this point, having such low inflation is impossible. The US will be in a much worse economic situation than the EU. Just wait and see.

Tariff have a one-off effect on price, so the inflation would spike mometnarily, but they, with base effect being a sorted, ill willl inevitabilyl decline.OF course this doesn't mean that prices will fall as well, but only that they will stabilise at ihgher level.
But at that point the dynamic induced by the recession would take its toll on inflation as well with probably negative prints.
The FED will have to cut then.

[takuma sato]

Another FOMC meeting where Powell did the same routine, he claimed that they are looking at the data and that it is still too inconclusive to lower rates due tariff fears, but he doesn't seem to understand that there will always be some excuse to not lower rates. Im still not fully buying the conspiracy theory of this being a controlled demolition where they delay as much as possible to make the panic cuts into a recession so they are forced to do it and have an excuse, but then again they will not look good since they will be blamed for it. So either way I think are screwed unless they hit a homerun in other words a soft landing.

[Abiky]

Another FOMC meeting where Powell did the same routine, he claimed that they are looking at the data and that it is still too inconclusive to lower rates due tariff fears, but he doesn't seem to understand that there will always be some excuse to not lower rates. Im still not fully buying the conspiracy theory of this being a controlled demolition where they delay as much as possible to make the panic cuts into a recession so they are forced to do it and have an excuse, but then again they will not look good since they will be blamed for it. So either way I think are screwed unless they hit a homerun in other words a soft landing.

Powell may be too slow, like Trump said. Luckily for the US, the FED chairman's term is coming to an end. By May 2026, Trump would've already nominated a new chairman. There are rumors it's going to be Treasury Secretary Scott Bessent. If confirmed by Congress, he would most probably do as Trump says by cutting rates like crazy. However, such a move would politicize the FED, undermining confidence among investors. The USD will lose dominance, paving the way for other currencies to take over the world.

At the time of this writing, the EUR stands strong while the USD continues to plummet. It's very likely the EUR will lead the way as the world's next reserve currency. Don't you think?

[fillippone]

Another FOMC meeting where Powell did the same routine, he claimed that they are looking at the data and that it is still too inconclusive to lower rates due tariff fears, but he doesn't seem to understand that there will always be some excuse to not lower rates. Im still not fully buying the conspiracy theory of this being a controlled demolition where they delay as much as possible to make the panic cuts into a recession so they are forced to do it and have an excuse, but then again they will not look good since they will be blamed for it. So either way I think are screwed unless they hit a homerun in other words a soft landing.

Powell may be too slow, like Trump said. Luckily for the US, the FED chairman's term is coming to an end. By May 2026, Trump would've already nominated a new chairman. There are rumors it's going to be Treasury Secretary Scott Bessent. If confirmed by Congress, he would most probably do as Trump says by cutting rates like crazy. However, such a move would politicize the FED, undermining confidence among investors. The USD will lose dominance, paving the way for other currencies to take over the world.

At the time of this writing, the EUR stands strong while the USD continues to plummet. It's very likely the EUR will lead the way as the world's next reserve currency. Don't you think?

I am not sure about the "luckily for the US" part.
Trump wants to fire Powell and replace him with whom?
I am not a fan of Jay Powell, but I am pretty sure that whoever comes after him will be a net worse Fed Governor.
Markets have started reacting to these speculations, with the Dollar Index (DXY) tanking: another tailwind for bitcoin.
 

[DeathAngel]

Seems that September will be the first cut. I think it’s too long, they should do it at the July meeting. Powell has his head stuck up his ass though, he keeps saying tariffs might increase inflation. He’s not supposed to predict what may happen. Delaying cuts is a big risk, we should get 2 cuts this year but Powell has been a problem.

[takuma sato]

Trump is back with the tariffs after they failed to reach an agreement with Canada. He already announced they will be announcing new tariffs for Canada in the coming hours, and looks like the EU and US will also not reach an agreement, so probably more tariffs on the way. The SP500 is already correcting almost 1% from the top, but it went up 0.5% from the wick on the futures. So probably the market is not buying Trump's flip flopping tariffs and don't want to overreact. Trump thinks the US is one of his personal businesses and is going to find out that is a mistake. This just gives further leverage for Powel to present a reasonable thesis when it comes to not cutting rates.

[fillippone]

Seems that September will be the first cut. I think it’s too long, they should do it at the July meeting. Powell has his head stuck up his ass though, he keeps saying tariffs might increase inflation. He’s not supposed to predict what may happen. Delaying cuts is a big risk, we should get 2 cuts this year but Powell has been a problem.

Inflation is part of the Fed's mandate.
Cutting rates ahead of a massive inflation shock could be a big error.
Tariff won't be an inflationary one-off, but rather another spiral.

[takuma sato]

Seems that September will be the first cut. I think it’s too long, they should do it at the July meeting. Powell has his head stuck up his ass though, he keeps saying tariffs might increase inflation. He’s not supposed to predict what may happen. Delaying cuts is a big risk, we should get 2 cuts this year but Powell has been a problem.

Inflation is part of the Fed's mandate.
Cutting rates ahead of a massive inflation shock could be a big error.
Tariff won't be an inflationary one-off, but rather another spiral.

The problem with tariffs is that what should be a one-off event that creates a shock but then the market adjusts, it's something that becomes a permanent uncertainty because the tariffs are constantly changed and used as a negotiating tactic, so the market never adjusts and then they are just stuck trying to guess what's next, this increased risk makes people less prone to invest and thus stay in defensive positions. But the paradox is that at the same time, at some point the public stops reacting to these news because they no longer believe Trump will stick to them and will fumble if the market crashes a lot anyway, so they frontrun it.

[Kagaru]

Seems that September will be the first cut. I think it’s too long, they should do it at the July meeting. Powell has his head stuck up his ass though, he keeps saying tariffs might increase inflation. He’s not supposed to predict what may happen. Delaying cuts is a big risk, we should get 2 cuts this year but Powell has been a problem.

Inflation is part of the Fed's mandate.
Cutting rates ahead of a massive inflation shock could be a big error.
Tariff won't be an inflationary one-off, but rather another spiral.

The problem with tariffs is that what should be a one-off event that creates a shock but then the market adjusts, it's something that becomes a permanent uncertainty because the tariffs are constantly changed and used as a negotiating tactic, so the market never adjusts and then they are just stuck trying to guess what's next, this increased risk makes people less prone to invest and thus stay in defensive positions. But the paradox is that at the same time, at some point the public stops reacting to these news because they no longer believe Trump will stick to them and will fumble if the market crashes a lot anyway, so they frontrun it.

They have been more than economic tools, they have been involved in political games and this has made them unpredictable. Investors can hardly risk such things when policies keep on rotating like that. And I too would say that waiting till September may be taking it too long. It is easy to understand the caution by the Fed, however being excessively slow is as disastrous as being too quick. The market is already psycheing itself up as to what Powell can or cannot do and that is enough in itself to screw up.

[Lucius]

~snip~
At the time of this writing, the EUR stands strong while the USD continues to plummet. It's very likely the EUR will lead the way as the world's next reserve currency. Don't you think?

I sincerely doubt that the euro can become the new reserve currency, not only because the US will use all possible means and methods to prevent that from happening, but also because the EU is simply too weak politically and militarily to be able to raise its currency to such a level.

Looking further ahead, after the UK leaves the EU all that needs to happen is for another major country to do the same and the foundations of the EU will be quite shaken. If you look at the overall picture, it is difficult for the euro to replace the US dollar, no matter how bad the latter is at the moment.

[Dogedegen]

I am not sure about the "luckily for the US" part.
Trump wants to fire Powell and replace him with whom?
I am not a fan of Jay Powell, but I am pretty sure that whoever comes after him will be a net worse Fed Governor.
Markets have started reacting to these speculations, with the Dollar Index (DXY) tanking: another tailwind for bitcoin.

Markets like stability, markets don't like chaos. Markets reacting to this in the short term does not mean that replacing Powell is bad, it just means that extreme changes to status quo are not welcome. Powell is an idiot and Trump is right about him. They should just get rid of him, he's doing this for political reasons. As you see, the inflation is not much better in the EU but they have massively cut the rates in comparison.

Inflation is part of the Fed's mandate.
Cutting rates ahead of a massive inflation shock could be a big error.
Tariff won't be an inflationary one-off, but rather another spiral.

It is not gonna happen, read the art of the deal to understand what is going on.

Easier said than done. Everyone can do an amazing job running a central bank, the most important central bank on earth to boot, from the comfort of your screen typing some comments, but let's be realistic, if you had to actually do it, it would be different.
All im saying is, tariffs are inflationary, or there is at least a rationale behind the prediction of inflation due tariffs, and so that is what Powell has done, frontrun possible inflation by keeping the rates as they are. And what does Trump do now, they say they are lowering China's tariffs. So Trump has been flip flopping for months with this, it's only fair that you may be cautious and just keep rates as they are until Trump lays out a more predictable plan, then they can lower rates. If they lower rates and we see another peak on inflation, that may be a bigger problem than having rates higher for longer for a while.

The chairman is literally not doing almost anything except having pointlessly long meetings over and over, reading reports (if he is reading anything at all) made by lower ranking employees. Looking up to authority is not good for anyone. Just because someone says that job is hard, that does not make it so. The idiot did not do almost anything for the last 2 years, the hardest job on the planet.   The FED has been corrupt for a long time, and it is mostly a question of for whose interest is it currently corrupt. Right now with Powell the picture is clear. Delay as much as possible to hurt the Republicans in the elections next year. 

[Abiky]

I am not sure about the "luckily for the US" part.
Trump wants to fire Powell and replace him with whom?
I am not a fan of Jay Powell, but I am pretty sure that whoever comes after him will be a net worse Fed Governor.
Markets have started reacting to these speculations, with the Dollar Index (DXY) tanking: another tailwind for bitcoin.

Well, yes. I was only talking sarcastically. Lucky for Trump. Not the US itself. With the FED turning into a politicized entity, the USD's dominance will begin decline all the way downhill in an instant. May 2026 will pave the way for "de-dollarization" at full speed. I guess now it's time for the EUR to shine? The eurozone currency is a lot stronger than the USD right now. Europe will be able to enjoy cheap imports in the long run. China already began exporting products to the EU in-mass, as a result of Trump's trade war.

Although recently, the US and China reached a deal, Trump's unpredicatability cannot be trusted. The EU is being considered as a trusted partner, due to its sound trade policies. It's no wonder why the ECB keeps cutting rates. I believe Europe's economy will boom like crazy. Where does that leave America? Alone, left behind in the dust. America First, right?

[Dogedegen]

Although recently, the US and China reached a deal, Trump's unpredicatability cannot be trusted. The EU is being considered as a trusted partner, due to its sound trade policies. It's no wonder why the ECB keeps cutting rates. I believe Europe's economy will boom like crazy. Where does that leave America? Alone, left behind in the dust. America First, right?

Europe's economy has been terrible and people have not been living as bad as they are now for a long time. I don't think you are up to speed with real wage data. Don't trust the news that you are presented usually, read the real data. Just because manipulated inflation numbers are low and interest rates are being lowered, that does not mean that people are doing good in the EU.

[Fortify]

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.

If Trump hadn't got into power then we would probably see the ECB and US Fed lowering interest rates at a similar pace. That is the problem with throwing dynamite around the economy, you leave the central bankers with no choice but to keep their defenses up which means higher rates. Tariffs, which are actually a tax on every American citizen, are driving inflation higher in America which was the root cause of interest rates being so high in the first place. Trump likes to blame all others but has shown nothing but incompetence and the makings of a failed dictator that we have seen many times in history. The fact that the US president, who put the head of the central bank into the position in the first place, is now leaning on what is supposed to be an independent decision making body for the benefit of the US economy is just another sign of his terribly weak leadership.

[Odohu]

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 find it very strange that Powell would nurture the thought of opposing Trump when Trump can easily replace him. The job of the Fed is supposed to be in line with the government of the day so why will the Fed refuse to lower rates when the government wants the rates lowerred? I know that Trump will not allow Powell thwart his economic policies so Powell's days may be numbered.