ECB’s Villeroy: Inflationary Effects of Trump Policy Not to Be ‘That Significant’ in Europe

22 January 2025

ECB’s Villeroy: Inflationary Effects of Trump Policy Not to Be ‘That Significant’ in Europe
François Villeroy de Galhau, governor of the Banque de France, at the European Central Bank Forum on Central Banking in Sintra on Jule 2, 2024. Photo by the ECB under CC BY-NC-ND 2.0.

By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau said on Wednesday that the inflationary impact of President Trump’s policies would not be as significant in Europe as in the US.

In a panel discussion at the World Economic Forum in Davos, Villeroy, who heads the Banque de France, said that ‘the effect of the Trump administration is probably too early to tell, we could expect this program to have inflationary effects in the US due to tariffs, fiscal expansion, etc.’

However, for Europe, the effects shouldn't be ‘that significant’, he said.

‘I would expect this disinflationary process to go on and victory against inflation to be final, if I may, because the tensions on the labour and goods market in Europe are much cooler’, he said.

The ECB was ‘vigilant but confident’ about the disinflation process, he said, and it was ‘plausible’ to expect interest rates to be around 2% by this summer.

This would ultimately mean a ‘decoupling’ between the Fed and the ECB, Villeroy said, but that was not a problem.

‘Both of us are independent of both sides of the Atlantic’, he added.

The downward trend of r* over the last two decades had stopped, he said, but there was no evidence that the level of the neutral rate was rising again.

‘It’s more or less stabilised’, he said. ‘But I would say cautiously it might be a bit different in the US.’

 

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