„Trump will try to undermine the Fed's independence“
Mr Kraemer, last week's interest rate cut by the ECB will not have been the last one. How much room for manoeuvre do you see for further easing?
We are going further than the market consensus, and expect the deposit rate to be 1.75% at the end of 2025. This is also due to the fact that we are painting a more pessimistic economic picture than others. I assume that Trump will implement his tariff announcements from the election campaign, which would severely dampen the eurozone economy.
Tariffs also have inflationary effects. But you assume that the deflationary effects will outweigh the inflationary effects, because of a weaker economy?
A tariff war could certainly trigger an inflationary surge. However, the EU has no interest in this, as it has much more to lose than the USA.
New ECB macroeconomic projections are due in March. Will it once again have to lower its growth forecasts?
There is not much time left until then. It is therefore quite possible that there will be no clarity before the tariffs. If this is the case, I expect only a moderate downward adjustment. The latest data was largely disappointing. There was no growth in the fourth quarter not only in Germany, but also in France and Italy. So the malaise is spreading.
What about inflation? As you expect four more interest rate cuts this year, you obviously share the optimism that the ECB will achieve its inflation target in the course of the year.
Services inflation is the Achilles heel. However, we believe that the ECB's assumption that wage growth will slow down is plausible.
Despite demographic change leading to labour shortages in some industries?
Without demographic change, we would probably already be experiencing stagnating wage growth. The labour market will become gloomier this year due to weak economic growth, which will dampen wage growth.
Energy prices are rising again. Futures contracts on the Amsterdam stock exchange were traded last week at prices higher than they have been for over a year. Does this threaten to trigger a surge in inflation or will it soon subside?
I don't expect energy prices to become a major issue for the ECB this year. Demand for fossil fuels is also unlikely to be as high, due to the global economic situation. China could have less demand for oil in 2025 than in the previous year – for the first time.
EU energy imports are settled in dollars. This is appreciating against the euro. Is this effect on inflation negligible?
It is not negligible because energy imports are important for the euro economy. In addition, the euro will depreciate even further as the interest rate differential between the US and the eurozone will widen. The most we are pricing in for the Fed this year is one interest rate cut. Euro-dollar parity should be reached by the middle of the year at the latest.
My advice to Trump is therefore: stay away from the Fed, it's dangerous! US government bonds are a safe haven for investors. He could jeopardise that.
Moritz Kraemer
US President Donald Trump, who is already verbally attacking Fed Chairman Jerome Powell, would not be happy if the Fed were only to cut interest rates once. Should we be worried about the independence of the central bank?
Trump will try to undermine the Fed's independence. He doesn't like it when someone doesn't do what he wants. And the Fed will not fulfil his wishes for interest rate cuts. Powell's mandate expires in 2026. Then Trump will replace him with someone who listens to him. But we must not forget that the Fed is a decentralised organisation. The Chairman of the Open Market Committee is not the only person who decides on monetary policy.
If serious doubts arise about the Fed's independence, do you expect major turbulence on the financial markets?
The Fed is the most important institution in the global capital markets. My advice to Trump is therefore: stay away from the Fed, it's dangerous! US government bonds are a safe haven for investors. He could jeopardise that. Then there is the issue of the unsustainable fiscal policy the US has been pursuing for several years, and Trump's plans to deregulate the financial sector. This could all become very turbulent. If investor confidence starts to slip and the US government fails to take the right countermeasures, a global financial crisis is imminent. By comparison, the turbulence surrounding Silicon Valley Bank in 2023 would be a cakewalk.
As you have already mentioned, excessive US fiscal policy is not a new phenomenon. Is there any hope that the US will change course at some point?
It will continue like this until either investors lose their nerve, or until the Congress can no longer agree on raising the debt ceiling and a default occurs. Both would cause major upheaval. Trump wants to finance his planned tax cuts with the tariff increases. However, this calculation will not work out. The US national debt will continue to rise significantly.
We currently have a social climate in Europe that favours populism and makes unpopular but necessary decisions more difficult.
Moritz Kraemer
How do you assess the fiscal situation in Europe?
Very differentiated. In France and Italy, for example, fiscal policy is not sustainable. In Germany, on the other hand, the debt brake prevents necessary investment. Which is why I expect the next German government to reform the debt brake in favour of earmarked funds. Fundamentally, we have the problem in Europe that political manoeuvrability is declining. This is preventing necessary austerity programmes.
As the example of France shows.
Emmanuel Macron's plans for pension reform were far-sighted. However, they have also contributed significantly to the political crisis in France. We currently have a social climate in Europe that favours populism and makes unpopular but necessary decisions more difficult.
The interview was conducted by Martin Pirkl.
