America’s strong economy makes high interest rates likely for 2025, but not in Europe
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America’s booming economy is making high interest rates a sure bet for 2025. Meanwhile, Europe is bracing for steep cuts as its economic struggles deepen. The Federal Reserve’s policy divergence from the European Central Bank (ECB) is widening the interest rate gap, and the fallout is hitting hard, especially in global markets. This growing divide threatens President-elect Donald Trump’s plans to revive U.S. exports, while also stirring old tensions between Trump and Federal Reserve Chair Jerome Powell. The U.S. dollar has surged 5% against the euro this year. Market analysts expect this rate gap to jump past two percentage points in 2025, driving the dollar higher. Trump, notorious for his disdain for a strong dollar during his first term, may once again lash out at the Fed. The rate gap: A growing headache The disparity between the U.S. and Europe isn’t new. During Trump’s first presidency, the Fed’s aggressive rate hikes widened the gap while the ECB kept rates below zero. He blamed the Fed for hurting trade, claiming high rates inflated the dollar. Now, both central banks are loosening policies, but Europe’s urgency far outweighs America’s. The ECB is cutting rates to boost its sluggish economy, which has been grappling with low growth since the pandemic. In contrast, America’s economic resilience has tempered expectations for Fed rate cuts. Strong consumer demand and energy independence are keeping the U.S. ahead. Fixed-rate mortgages have shielded homeowners, softening the impact of tighter monetary policy. “Europe is looking weaker by the day,” KPMG’s chief economist Diane Swonk said. The ECB is anxious to cut rates as the region faces a perfect storm of economic problems. Post-pandemic inflation and an energy crisis triggered by the war in Ukraine have hamstrung Europe. Dependence on Russian energy sources and slow recovery efforts are weighing on growth,…
Filed under: News - @ December 16, 2024 8:19 pm