Central banks across Europe are cutting interest rates to support their economies amid uncertainty from U.S. President Donald Trump’s trade war, while the U.S. Federal Reserve has kept rates steady due to inflation concerns.
Central banks in Switzerland, Sweden, and Norway have all reduced their official interest rates this week, with similar moves from the European Central Bank (ECB) and Bank of England in recent months. The interest rate cuts come as European central banks respond to the economic uncertainty generated by President Donald Trump’s tariffs and “Liberation Day” trade announcement on April 2.
All five central banks have recently cut their growth forecasts, citing that uncertainty over trade has weakened confidence and economic activity. In contrast, the U.S. Federal Reserve has not lowered interest rates this year, as the breadth and scale of Trump’s tariffs are expected to increase inflation in the United States.
Fed Chair Jerome Powell told reporters on Wednesday that tariffs are likely to contribute to higher inflation in the coming months, requiring the Fed to keep rates higher for longer to maintain well-anchored inflation expectations. Powell said, “Our obligation is to keep longer-term inflation expectations well anchored, and to prevent a one-time increase in the price level from becoming an ongoing inflation problem.” He noted the U.S. economy is still growing at a decent rate, and unemployment is low at 4.2 percent.
President Trump has criticized Powell for not cutting rates, calling him a “numbskull” and stating, “We have no inflation. We have only success. And I’d like to see interest rates get down.”
In Europe, the initial impact of tariffs has been felt in the export sector, resulting in slowing economic momentum and falling inflation. The Riksbank (Sweden) reduced its key rate to 2.0 percent, citing a loss of recovery momentum. The Swiss National Bank cut its rate to zero, with growth expected to remain subdued. Norges Bank (Norway) cut its rate for the first time since the post-pandemic inflation surge and signaled more cuts may follow.
The Bank of England left its rate at 4.25 percent but had already reduced it in May, with Governor Andrew Bailey indicating that interest rates remain on a gradual downward path. The ECB cut its key rate for the eighth time this year, with further cuts expected by some analysts.
Falling inflation is now a concern for European central banks. The ECB expects inflation to reach 1.6 percent next year before returning to the 2.0 percent target by 2027. In Switzerland, annual inflation was -0.1 percent in May.
Trump’s policies have also weakened confidence in the U.S. dollar, which has lost nearly 9 percent against major Western currencies in 2024. This has made European imports—especially commodities priced in dollars—cheaper, contributing to disinflationary trends.
The SNB’s rate cut was partly aimed at reducing the franc’s attractiveness as a safe haven. SNB Chair Martin Schlegel said negative rates could return if needed, although such a decision would not be taken lightly.
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