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U.S.–Euro Rates Gap Is Set to Widen Again

In his first term, Trump bashed the Fed for allowing higher interest rates in the U.S. vs. Europe to drive up the dollar and hurt exports. Next year will likely bring more of the same, as the U.S. economy remains considerably stronger, meaning rates here will likely fall more slowly than in the Eurozone.

By Catarina Saraiva | December 16, 2024 at 02:47 PM
The dollar touched the lowest level in 16 months vs. the euro, as signs of sustained global growth boosted demand for higher-yielding assets.

America’s surprisingly robust economy has raised expectations that U.S. interest rates will stay high next year compared with European rates. That may sound like a good problem to have, but it spells trouble for President-elect Donald Trump’s trade ambitions. The gap between U.S. and Eurozone interest rates, which is set to widen, has already driven up the value of the dollar and could undercut Trump’s efforts to boost U.S. exports.

And Trump’s problem could soon become Jerome Powell’s, too. A similar rate gap in Trump’s first term was a frequent irritant to the president and a trigger for regular bashing of the Federal Reserve chair and his colleagues. Now that Trump’s heading back to the White House, another divergence between the Fed and its global peers may drive more of the same.

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