European Central Bank rates could fall faster as recession risk mounts

A global market rout induced by US President Donald Trump’s tariffs scheme has solidified the case for another ECB rate cut next week and supports arguments for even quicker policy against from the world’s second largest central bank.

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The expected economic slowdown induced by the tariffs along with the rout in the market volatility is likely to be such a drag on prices that they will likely outweigh the inflationary impact of any retaliatory measures by the EU, economists say.

Economists see almost two rate cuts in the European Central Bank’s next two meetings and see between three and four steps between now and the end of the year. German bond yields, the euro zone’s benchmark, were once again falling on Monday as markets priced in a recession in the bloc and monetary easing to deal with it.

While ECB policymakers are far from a consensus on what it all means in the longer run, the rout makes next week’s rate cut a near certainty and interest rates could fall far deeper this year than earlier thought without jeopardizing the 2% inflation target.