Lagarde: More Interest Rate Cuts on the Horizon

Forex - ECB President Christine Lagarde stated that the European Central Bank will continue to lower its key interest rate due to the overshadowing impact of the threat of U.S. tariffs on already weak growth expectations. Speaking in Lithuania, Lagarde mentioned that further cuts are on the way. "The direction is clear, and we expect to lower interest rates further," she said. ECB policymakers were concerned about the rapid rise in service prices linked to wage growth that is occurring at a faster rate compared to the past decades. However, Lagarde indicated that measurements adjusted for base effects show that service inflation has "sharply decreased recently." The ECB also expects wage growth, which is currently at 4.8% this year, to drop to 3% by 2025, a rate Lagarde described as "consistent with our target." As inflation declines, economic growth in the Eurozone has been weaker than the ECB anticipated. Lagarde noted the "stunning" "inertia" in consumer spending, with consumers continuing to save a significant portion of their income. New threats to growth have emerged with President-elect Donald Trump's proposal to impose higher tariffs on imports from Europe. Lagarde commented, "Increasing geopolitical uncertainty could create new downturns in household sentiment, especially if the U.S., our largest export market, adopts a protectionist stance."