They are expected to move on a different trajectory US Central Bank (Fed) and the European Central Bank (ECB) next week as, barring the unexpected, the Fed will cut its key interest rate by 25 basis points to 3.75%-4% on Wednesday, while the ECB will keep it steady at Thursday’s meeting.

Starting with the ECB, the deposit rate will remain at 2%for the third time since June, after it had previously been reduced by a total of 200 basis points (2 percentage points) in the previous 12 months. Everything indicates that the cycle of ECB interest rate cuts is closed “until further notice”, that is, until there are significant changes in the outlook for inflation and growth in the Eurozone, which are currently not on the horizon.

Forecasts by the ECB and international financial institutions agree that inflation will continue to run at around 2% until the end of the year and into 2026, and that growth will move above 1%, with the possibility of a recession virtually non-existent.

While forecasts can always be overturned by reality, the ECB’s 26-member Governing Council’s confidence in them has risen dramatically following the EU-US trade deal which has significantly reduced uncertainty about the impact of US tariffs. Thus, the risk of a significant slowdown in the Eurozone economy and a drop in inflation well below 2%, which would likely necessitate a further reduction in interest rates, is now considered very small.

This climate was clearly conveyed by the statements of the central bank’s leading actors in recent weeks. ECB President Christine Lagarde stressed that the Eurozone had weathered the US tariffs better than expected, with risks to inflation now “very limited”. ECB Vice-President Luis de Guidos stressed last Wednesday that the current level of interest rates is appropriate, adding to the constant refrain in ECB monetary policy announcements that “interest rate decisions are not predetermined and will be taken at each meeting.” Accordingly, the president of the Bundesbank (the German central bank), Joachim Nagel, said last week that he sees no reason to change interest rates as no significant changes in the state of the economy are expected. “I don’t see any reason to change anything unless there is something new and I don’t see where that could come from,” he added.

Economists and money markets agree with the forecasts of ECB officials. Nearly three in four of 88 economists polled by Reuters expect the ECB to keep the deposit rate at 2% until the end of 2025, and more than half believe there will be no change until the end of 2026. Money markets, for their part, see a marginal rate cut of 25 basis points at the end of 2026.

Unlike the ECB, the US central bank (Fed) seems willing to resume interest rate cuts, which it restarted in September after a 9-month waiting period. The Fed had kept interest rates steady since December last year, following the election of Donald Trump to the US presidency with tariff hikes high on his economic agenda. Since tariffs boost inflation as they are a tax imposed on imported goods, the Fed chairman had referred to this risk and stressed that the central bank would take a wait-and-see attitude until the impact on inflation and the US economy in general was seen.

The tariffs did affect U.S. inflation, which stood at 3% year-on-year in September from 2.3% in April – when Trump had announced so-called “retaliatory” tariffs against nearly every country in the world – but less than many analysts and international organizations had expected. The IMF and OECD have warned, however, that the impact of the tariffs on inflation has yet to be fully seen as importing businesses initially absorbed them in part, at the expense of their profit margins.

At the same time, however, the tariffs have had the effect of slowing the US economy and easing labor market conditions, with hiring falling to its lowest level since the first period of the coronavirus and the unemployment rate rising above 4%. That’s the reason Fed Chairman Jerome Powell cited for resuming interest rate cuts last month, and for the same reason the Fed is expected to cut them again next Wednesday.