European Central Bank Lowers Interest Rates and Focuses on Promoting Growth

The European Central Bank (ECB) has cut interest rates for the second consecutive time, signaling a new priority: economic growth. The key interest rate was lowered by 0.25 percentage points to 3.25 percent, further widening the gap with the US Federal Reserve's rates. These measures reflect the ECB's increasing concerns about weak economic growth, which is more pronounced in the Eurozone than in the United States. With this decision, the ECB breaks a nearly ten-year pattern by announcing rate cuts at two consecutive meetings. According to the press release, recent negative surprises in economic indicators are the reason for this step. While growth problems and rising energy prices are weighing on the Eurozone, the inflation rate remains surprisingly low at 1.7 percent, thus below the target of 2 percent. Germany's stagnating economy, a decline in the purchasing managers' index, and weaker exports to China are additionally burdening the Eurozone. At today's press conference, ECB President Christine Lagarde expressed concern about growth prospects, indicating that the bank might act more quickly in the future than investors expect. The bank plans to set interest rates from meeting to meeting based on current economic data but considers it possible to cut further in December. While there is still uncertainty for 2025, forecasts about the interest rate level vary; there is currently a consensus that it will fall just below 2 percent next year, though some analysts expect 2.5 percent. Holger Schmieding, chief economist at Berenberg Bank, expressed the fear that the ECB might overshoot its mark in its policy reversal: "The persistent weakness in growth supports our assessment that raising the deposit rate to 4 percent was a mistake. Now there is a risk that the ECB may again overdo it with easing.