ECB Chief Economist Philip Lane has warned that political and monetary turmoil in the U.S. could spill over into Europe, potentially delivering what he called a “financial shock” to the euro. His comments highlight just how closely connected the world’s major currencies still are.
In an interview with Italy’s La Stampa, Lane said the ECB sees no urgent reason to change interest rates as long as the eurozone economy continues to perform as expected. Current rates, he explained, are solid enough to support the economy in the years ahead. Inflation across the 21-country bloc is easing toward the ECB’s 2% target, and Lane said he expects economic growth to pick up later this year and into next.
Still, he struck a cautious note about developments across the Atlantic. Any shift in U.S. monetary policy, especially if the Federal Reserve struggles to bring inflation under control, could create serious problems for Europe. Lane went further, warning that doubts about the dollar’s global role could send shockwaves through the euro.
Those concerns come as tensions rise in Washington. President Donald Trump has stepped up public criticism of Federal Reserve Chair Jerome Powell, while the U.S. Justice Department has launched an investigation into cost overruns on a Fed renovation project. Powell has rejected the allegations, saying they are being used as leverage to pressure him into cutting interest rates. Trump has said he does not plan to fire Powell for now, but has openly discussed possible replacements.
ECB Vice President Luis de Guindos weighed in this week, stressing that central bank independence is essential. At the same time, he said cooperation with the Federal Reserve remains strong and routine. Currency swap lines between the ECB and the Fed, he noted, continue to play a key role in maintaining financial stability.
For the moment, the ECB is firmly in wait and see mode. After wrapping up a rapid round of rate cuts in June, policymakers appear content to hold steady, keeping Europe’s monetary policy anchored, even as uncertainty builds elsewhere in the world.
