Lagarde Drops Bombshell: US Tariffs Could Slash Eurozone Inflation—Powell Gets Rare ECB Nod

ECB chief Christine Lagarde flips the script—claims US trade barriers might actually cool Europe’s inflation furnace. Throws shade at monetary orthodoxy while tipping her hat to Fed Chair Powell (because even central bankers need frenemies). Bonus take: When economists praise tariffs, you know the financial universe has officially jumped the shark.

Lagarde expects China’s exports to flood Europe and bring prices down

Christine brought up the ongoing US-China trade war and said it could force China to find new markets to dump its extra supply. Her warning was direct: “China will have overcapacity, will want to reroute its exports somewhere, possibly to Europe, that would have a dampening impact on prices.” 

With the US trying to keep Chinese goods out, those products need to go somewhere, and the European market might be the easiest alternative.

Meanwhile, the European Union recently agreed to delay the rollout of its own counter-tariffs for 90 days after Donald Trump imposed 25% duties on steel and aluminum imports from the EU.

That delay came right after Trump dropped his so-called “reciprocal” tariff rate on most European goods from 20% to 10%, also for 90 days.

Trump told reporters he’s “very confident” a trade agreement with Brussels will happen. On the same day, French Finance Minister Eric Lombard said he hopes Europe won’t strike back with tariffs and instead moves toward a “genuine free trade agreement” with the US.

ECB may adjust growth outlook as tariffs hit business activity

Christine said the ECB might have to revise its growth forecast at its June meeting because the effects of tariff threats are now being felt in economic data. 

“Not so much in the exports numbers — because there is a buildup of inventories as we see at the moment in anticipation of possible tariffs — but we are seeing that in PMI numbers, in intention to purchase, intention to hire, this is slowing down,” Christine said.

She also gave her take on the US-China tariff war and said the two governments will eventually come to the table. Christine said, “You look at the tariffs on China, 146%, China’s tariff on the United States, 125% — this is monumental, and as Secretary Scott Bessent said yesterday, it’s not sustainable.” With those kinds of numbers, she said, both sides know the standoff can’t go on much longer.

Christine addressed US monetary policy too, saying she has “enormous respect” for Federal Reserve Chair Jerome Powell and believes he’s doing what his job requires.

“I am reassured by the talent and the competence of the chair of the Fed,” she said. “And I know for a fact that he’s putting all his efforts and all his discipline into delivering on his mission.”

Despite Trump regularly attacking Powell for not slashing interest rates, Christine said she believes the Fed remains on track. “He’s doing exactly what is expected of him to serve the American people and financial stability, which goes together with price stability,” she added.

Christine also called out the danger of political interference in central banking.  “If you look at academic literature on the topic, and there’s plenty of it across the world, whenever there has been political interference and whenever central bank chair or president have lost their independence, as a result, it has been followed by declining growth, increased inflation,” said Christine. “This is not something that anybody wants and certainly not something that serves the mission.”

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