US trade war, Middle East turmoil add variables European Central Bank (ECB) committee member Nagel: Under high uncertainty, should not predetermine interest rate path

Member of the European Central Bank Management Committee Joachim Nagel stated that in the shadow of US trade policy and the situation in the Middle East casting a shadow on the economic outlook, the bank should not commit to a specific path of interest rate adjustments. The German central bank president made this statement on Monday at the Walter Eucken Institute in Freiburg. He said, "Apart from developments in the Middle East, the biggest uncertainty factor in the future direction of monetary policy is undoubtedly the unpredictable US trade policy." He emphasized, "Not only is it difficult to quantify the impact of the tariff policy implemented by Trump, but there are also variables in whether it will ultimately lead to inflation or deflation effects." "Therefore, as members of the management committee, it is wise to continue to maintain policy flexibility and data dependence," Nagel said. Earlier, ECB President Lagarde had indicated that the easing cycle was nearing its end after cutting the key deposit rate from 4% to 2% within a year. However, there are still disagreements within the decision-making body - some officials believe that the rate cut cycle may have ended, while others argue for further rate cuts to support economic growth. Despite the ECB's expectations that the economy will regain momentum in the coming years, uncertainty remains high. Escalating conflicts in Ukraine and the Middle East are exacerbating downside economic risks - just on Monday, Israel intensified attacks on Iran, while Iran threatened retaliation for the US attacks on its nuclear facilities over the weekend. However, Trump later tweeted on his social media platform "Truth Social" that Israel and Iran had agreed to a comprehensive ceasefire. Nagel, traditionally seen as a hawkish member of the governing council, also noted, "The current interest rate level puts us in a favorable position to observe inflation trends." This is in line with Lagarde's statement at a European Parliament hearing the same day, where she reiterated that the ECB is prepared to address "exceptionally high levels of economic and political uncertainty." Responding to questions raised by some policymakers about the potential conflict between the ECB's current tapering operations and lowering borrowing costs, Nagel categorically denied this. He said, "The impact of gradually unwinding asset purchase programs on the monetary policy stance should be limited." And he added that the ECB has taken into account the so-called effects of quantitative tightening as medium to long-term market rates reflect these effects. "The euro system currently effectively controls the monetary policy stance mainly through key interest rates," Nagel concluded, "So we can continue to passively exit the monetary policy purchase program without worries."