The recent monetary policy decisions by the Group of Seven (G-7) countries, following the upheaval caused by President Donald Trump’s trade war, may lead to differing strategies across the Atlantic.
On Wednesday, the Bank of Canada is expected to keep interest rates steady to mitigate the inflationary risks associated with the ongoing tariff conflict with the U.S. In contrast, the European Central Bank (ECB) is widely predicted to cut interest rates the next day.
The Federal Reserve’s next meeting is scheduled for May 7, making this week’s discussions critical for central bankers in Ottawa and Frankfurt, as they manage investor concerns while evaluating the economic consequences of Trump’s trade actions.
Although the U.S. president has temporarily suspended several of the most severe tariffs—excluding those on China—market volatility and growing uncertainty can still have detrimental effects. ECB President Christine Lagarde acknowledged these risks on Friday, emphasizing that officials are closely monitoring the situation and have various tools at their disposal, noting the interconnectedness of price and financial stability.
This marks the second time in just over two years that Lagarde and her colleagues find themselves faced with making rate decisions amid U.S.-induced turmoil, prior to a Fed meeting. Following the collapse of Silicon Valley Bank, the ECB opted to proceed with a planned half-point increase in 2023.
This time, however, the ECB’s decision may be clearer. With anticipated tariff impacts on the economy and a current EU stance delaying inflation countermeasures, a quarter-point rate cut is expected.
Canada is grappling with a more complex scenario. Trump’s tariffs have started to impact business investment and consumer spending, spurring rising inflation expectations. Upcoming consumer price data on Tuesday could significantly influence their decision-making.
Looking at other regions, key rate decisions are anticipated from countries such as South Korea and Turkey, alongside updates on China’s GDP and inflation statistics from the UK to Japan.
U.S. Economic Landscape
In the U.S., escalating Treasury yields, a weakening dollar, and falling stocks linked to trade policies will prompt investors to seek insights from Federal Reserve officials regarding their stance on interest rates.
Fed Chair Jerome Powell will provide an economic assessment in a speech on Wednesday, while other Fed officials will discuss economic and banking issues on the same day.
On Monday, Fed Governor Christopher Waller will address the economic outlook, followed by remarks from Fed Governor Lisa Cook on Tuesday.
Moreover, March’s retail sales are predicted to show a significant rise as consumers aimed to purchase goods before the new tariffs on imported vehicles and auto parts took effect. A Bloomberg survey projects a 1.4% increase, noted as the largest monthly jump in 2023.
In the automotive sector, industry data shows a surge in sales to an annualized pace of 17.77 million, marking the most robust month for car dealers in almost four years. The recently imposed 25% tariffs on imported automobiles went into effect on April 3.
Excluding vehicles, and focusing on essential goods like gas, building materials, and food services which track closely with GDP spending, sales are expected to reflect solid growth amidst a generally quiet quarter for consumer spending.
Additionally, Wednesday’s industrial production data is likely to indicate a 0.2% drop in March due to mild weather affecting utility output and slowing manufacturing growth. Data released Thursday is projected to show a dip in housing starts, as builders work on clearing new-home inventory.
Furthermore, the U.S. administration has exempted widely-used consumer electronics, such as smartphones and laptops, from reciprocal tariffs, alleviating concerns for consumers who rushed to purchase devices amidst tariff-related price increase fears.
Asia Outlook
Chinese data is set to reflect the impacts of Trump’s tariffs. Export figures on Monday are expected to indicate a slowdown in March, while first-quarter GDP results two days later might reveal a decelerating economy. Reports on Thursday may show ongoing consumer deflation.
Despite the pressures, Beijing maintains a firm stance. On Friday, China responded to the latest U.S. tariffs by raising duties on all American goods, dismissing the U.S. administration’s measures as a “joke” and stating they no longer deemed it necessary to match the tariffs.
A rate decision from the Monetary Authority of Singapore is anticipated on Monday, with expectations for an easing. South Korea’s central bank is likely to maintain its current rates on Thursday.
Inflation figures are also expected from various countries, including India (Tuesday), New Zealand (Thursday), and Japan (Friday).
Europe, Middle East, Africa Insights
UK economic reports are anticipated to attract attention, particularly data indicating the strength of price pressures.
A labor market report on Tuesday might reveal persistent wage growth, and inflation figures the following day could show weaknesses in both headline and core measures, despite remaining above the Bank of England’s target of 2%.
Neither report is likely to prompt policymakers to speed up monetary easing, especially following an unexpected growth surge reported for February.
In the eurozone, lower-tier economic reports could help guide ECB officials leading up to
