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During a recent engagement at the IMF World Bank Spring Meetings, European Central Bank President Christine Lagarde expressed her hope that U.S. President Donald Trump would not dismiss Federal Reserve Chair Jerome Powell from his position.
In a discussion with CNBC’s Sara Eisen, Lagarde was asked if the possibility of such a scenario posed a substantial risk to financial markets, to which she responded, “I certainly hope not… I hope that it is not a risk.”
Lagarde refrained from speculating on the potential market consequences of an event she deemed unlikely, but acknowledged the broader context of political pressures surrounding central banks.
President Trump has intensified his calls for the Fed to lower interest rates, warning that the stagnation of the U.S. economy could ensue without such actions.
In response, Powell indicated last week that the ongoing trade war initiated by Trump might dampen economic growth and increase inflationary pressures. He did not offer guidance on future interest rate changes, stating, “for the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance.”
Powell, who was appointed by Trump during the president’s initial term, has recently faced scrutiny regarding whether he can legally be removed from office ahead of his term’s conclusion.
Lagarde shared her respect for Powell, noting, “We’re both used to political pressure in one way or the other.” She praised his dedication to fulfilling his mandate with diligence and discipline. “For him, as it is for me, the mandate is our compass. We have to deliver on our mandate,” she said.
Currently, there is a noticeable divergence in the monetary policies of the ECB and the Fed. The European Central Bank has consistently cut interest rates as it seeks to manage inflation levels near its 2% target amidst slower economic growth in the euro area. In contrast, the Fed has maintained steady rates this year following a series of reductions in late 2023.
Last week, the ECB reduced interest rates by an additional 25 basis points, marking its third cut in 2025 and the seventh since it began easing monetary policy the previous summer. The central bank’s most recent monetary policy statement highlighted a deteriorating growth outlook influenced by global trade uncertainties attributed to Trump’s tariff policies.
Scope for EU-U.S. Trade Negotiation
In her remarks, Lagarde addressed the ramifications of Trump’s tariff measures on the market, noting that the tariff burden faced by the eurozone surpasses the blanket 10% imposed on U.S. trading partners, which includes higher duties on steel, aluminum, and automobiles. Legislation could enable the EU to face blanket 25% tariffs unless a trade agreement is achieved.
“I am sure that there is scope for negotiations,” Lagarde remarked, emphasizing the inherent desire among policymakers to engage in dialogue and advocate for their respective positions and vulnerabilities. “I would be surprised if there was not such a thing,” she added.
Currently, the EU has paused its initial round of counter-tariffs in response to the existing tariffs on metals as trade discussions continue.
Lagarde also contested Trump’s characterization of the EU’s trade practices as unfair due to its trade surplus, explaining that trade relations encompass not only goods but also services and foreign direct investment. “There is so much joint interest” between the U.S. and Europe, she stated. “There might be sectors where serious negotiations need to be had, but as is always the case with trade…it’s not just on one side; it’s on both sides.”
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