ECB Insight: Trump Decries ECB’s Alleged ‘Monetary Manipulations’ as He Makes Them Likelier

26 May 2025

By David Barwick – FRANKFURT (Econostream) – On Friday, US President Donald Trump announced tariffs on the EU of 50% from 1 June. On Sunday, he took it back, albeit merely in favour of maintaining the previous ongoing 90-day pause giving both sides time to hammer out a trade deal.

Even abstracting from the larger question of what happens at the end of those 90 days, this is not some kind of happy ending presenting grounds for optimism from the European Central Bank’s perspective.

As a reminder, we have argued for some time that the closer things return to the situation before the April 2 announcement, the less need the ECB will see for cutting interest rates. This being the case, the whole episode of the last several days strengthens the case for June’s 25bp cut.

Despite the prompt rollback of Friday’s ukase, the renewed demonstration of American willingness to whittle steadily away at the confidence underpinning global trade relations takes us precisely in the opposite direction of optimism about prospects for a return to a semblance of normalcy.

Trump reminds us that he has no qualms about playing with fire for the sake of a perceived negotiating advantage, and even when a deal is reached, as it probably will be, deep uncertainty appears destined to remain pervasive for some time to come.

Ironically, Trump thus unwittingly boosts the likelihood of further ECB rate cuts beyond June – the very ‘monetary manipulations’ he also denounced on Friday.

Another effect of his public tantrum is to underscore the importance of the ECB’s data-driven, meeting-by-meeting approach to policymaking, which the ECB was going to preserve for the foreseeable future anyway.

As for the macroeconomic projections, we assume that these are done and dusted, with the likely cut-off date for the technical assumptions having been 14 May and the updated forecasts finalised last Wednesday.

With some time to go until the 90-day tariff pause ends on 9 July, the baseline of the projections to be released next week will presumably not incorporate new tariffs. Even the tariffs on Mexico and Canada announced on 1 February didn’t make it into the March projections (cut-off date 6 February, finalised 19 February) because, as the ECB said then, ‘they remained too uncertain to be included in the baseline.’

Instead, the ECB will consider in a scenario analysis the consequences of hypothetical tariff scenarios. As Chief Economist Philip Lane said in a speech on 16 May, 'In the near term, the ongoing uncertainty about US tariff policies means that alternative scenarios will also be included in the June macroeconomic projections exercise.'

In any event, the groundwork for the June cut has been rather well laid, with or without the pessimistic but reasonable assumption that there will be no getting around a toll on European growth from the trade conflict.

By highlighting the precarious situation of global trade, and of Europe’s economy with it, Trump has given the ECB yet more reason to feel comfortable with another 25bp of easing – not 50bp – next week.