The pace of interest rate cuts can't be stopped? European and British central bank officials expect tariffs to lower inflation.

Finnish Central Bank Governor and member of the European Central Bank's management committee Olli Rehn said that the US tariff policy may temporarily push down inflation in the Eurozone, leading to a so-called "disinflation" trend. However, the overall impact on the European economy and long-term inflation is difficult to accurately predict. Almost at the same time, one of the most "hawkish" monetary policy decision-makers at the Bank of England (BOE), Megan Greene, stated that the Trump administration's global tariff policy is more likely to lower prices in the UK, rather than increase inflation. The information revealed by these two European central bank officials implies that the European Central Bank and the Bank of England may continue to implement rate cuts due to the continued cooling of inflation, instead of choosing a cautious stance of pausing rate cuts. Also on Tuesday, the European Central Bank's quarterly professional forecast survey report showed that inflation in the Eurozone in 2025 and 2026 is expected to be only slightly higher than previously expected, with the latest inflation expectations at 2.2% and 2% respectively. However, compared to 2023-2024, there is still a significant cooling trend in prices, and inflation expectations for 2027 and beyond are maintained at 2% (the ECB's price stability target is 2%). Among the members of the ECB's management committee, Rehn, who has a neutral stance on monetary policy in the long term, said: "In the short term, the impact on consumer price growth in the Eurozone may tend downwards." "The impact of tariffs on the inflation rate is contradictory. In the US, tariffs will lead to accelerated inflation, but in the Eurozone, the effects of Trump's tariff policy have two directions: on one hand, the upward pressure on prices due to the cost of tariffs being passed on to domestic consumers, and on the other hand, the suppression of demand leading to a significant decrease in inflation." "Inflationary effects on the Eurozone are not necessarily tending towards inflation. Most economists have almost unanimously believed that tariffs would weaken the Euro. However, this is not the case, quite the opposite, the Euro against the Dollar has been very strong recently," said Rehn in an interview on Tuesday. Rehn made the comments at the beginning of talks on the Finnish government's budget framework for 2026-2029. "If China redirects exports to the European market due to high US tariffs, if energy prices fall, and if the Euro strengthens, then tariffs will not accelerate inflation in the Eurozone," Rehn said. However, Rehn also stated that the Eurozone economy may trend downwards due to the Trump administration's imposition of tariffs on EU cars, car parts, steel, aluminum, and more potential industry tariffs. "However, the new round of global trade wars initiated by the Trump administration has created great uncertainty and lowered the economic growth prospects of the Eurozone." Regarding recent news about President Trump's attempts to interfere with the independence of the Federal Reserve, Rehn said in the interview: "The latest comments questioning the independence of the Federal Reserve further erode market confidence." Rehn's view that Trump's tariff policy may lead to a short-term downturn in inflation is in line with the view of a Bank of England official, emphasizing that the risks of disinflation in the local economy due to US tariff policy are greater than the risks of inflation. One of the most "hawkish" monetary policy decision-makers at the Bank of England, Megan Greene, stated that the global wave of tariffs led by the Trump administration is more likely to significantly lower prices in the UK, rather than sustainably increase inflation. In an interview on Tuesday, Greene, who has a long-standing hawkish stance on monetary policy, said that she has been cautious in the Bank of England's Monetary Policy Committee (MPC) mainly due to concerns about supply-side restrictions, still high wage growth rates, and the persistence of service sector inflation. However, she added: "I believe these tariffs are more likely to bring about deflation risks rather than inflation risks. We need to observe further developments." Greene also pointed out in the interview that the White House's trade policy could trigger larger financial market volatility. "While tariffs are expected to raise prices in the US, the UK may experience the opposite disinflation effect due to cheap Asian exports shifting to Europe, a weakening US dollar, and reduced demand from slowing European economic growth," Greene said when discussing inflation trends in the UK. "I actually see tariffs more as a disinflation risk rather than an inflation risk. Therefore, we must see how the economy will develop in the future." When asked about Trump's criticism of Fed Chairman Powell and his comments about trying to dismiss Powell, Greene emphasized: "Maintaining the independence of the central bank is crucial, reputation is the currency of the central bank, and independence is its core." Since last summer, the Bank of England's Monetary Policy Committee (MPC) has maintained a gradual pace of rate cuts every quarter, but the negative impact of US tariff policy has increased expectations in the market for the Bank of England to accelerate easing this year. Traders in the interest rate futures market expect that the Bank of England will cut rates at least three more times by the end of the year, with the probability of a fourth rate cut exceeding 50%. On Tuesday, the economic team of Bank of America raised its expectations for this year's rate cuts by the Bank of England from three to four, and said that rates may be as low as 3.25% next year. The Bank of England will announce its next rate decision on May 8. Last week, the European Central Bank cut its benchmark interest rate by 25 basis points to 2.25%, marking the seventh rate cut in this cycle, aimed at boosting the already struggling Eurozone economy - which has been facing severe market disturbances since US President Trump implemented retaliatory tariffs on April 2. With European Central Bank officials starting to suggest that US tariffs may lower European inflation rather than increase it, expectations for the ECB to continue rate cuts are expected to rise significantly. The European Central Bank emphasized in its policy statement that trade tensions have worsened the economic growth prospects for Europe and have caused "exceptional uncertainty," while removing the reference to interest rates being at "restrictive levels." The latter is usually seen as a signal of slowing the pace of rate cuts, but ECB President Lagarde explained that during economic shock periods, an unobservable neutral rate is used to assess the policy stance."It's meaningless," this statement finally brought clarity to the market.Some economists emphasize the risk that inflation may fall below the central bank's target. For example, Citigroup predicted before the European Central Bank meeting that next year, the Eurozone inflation rate will drop to 1.6%, and in 2027 it will be 1.8%. This poses a potential challenge for the European Central Bank - before the COVID-19 pandemic, the bank had long struggled with inflation below the target level.