Europe | The ECB begins to drift away from the Fed

Summary

The latest meetings of the Federal Reserve (Fed) and the European Central Bank (ECB) have confirmed what was expected: that monetary policy in both regions is starting to diverge.

Key points

• Key points:
• While the Fed held interest rates steady at 4.50%, the ECB carried out another cut, this time by a further 25 basis points, following its previous cuts totaling 100 basis points, to leave the depo rate at 2.75%.
• The US economy continues to perform very well, with domestic demand resisting the impact of the previous rate hikes and global uncertainty.
• In Europe, the economy stagnated in the last quarter of the year, with a worse than expected outcome due to the glaring weakness of the French and German economies.
• BBVA Research expects the central bank to cut rates this year to 2%, with three more rate cuts to come at its next three meetings.
• The debate will heat up from March onward, when the ECB releases its new forecasts, and especially when we have more clarity on what Trump is going to do when it comes to tariffs.

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