According to Nomura, the recent U.S. tariffs are set to hinder economic growth while simultaneously increasing inflation. As a result, the Federal Reserve is expected to begin lowering interest rates by the end of this year.
Meanwhile, the European Central Bank (ECB) could respond even more swiftly, with potential rate cuts occurring as soon as this month. The situation escalated when U.S. President Donald Trump introduced extensive tariffs on multiple countries, heightening fears of a global trade war.
This move has raised concerns about a potential global economic slowdown or even a recession. Nomura has revised its U.S. GDP growth estimate downward from 1.5% to just 0.6% on a quarterly basis and adjusted its year-end core PCE inflation forecast upward from 3.5% to 4.7%.
Due to these developments, Nomura anticipates that the Federal Reserve will reduce rates in December, bringing the policy rate down to 4.125%. Additionally, they foresee further cuts of 25 basis points in the first quarter of 2026.
Previously, they had expected the Fed to maintain rates between 4.25% and 4.5% until the second quarter of 2026. The economists at Nomura noted that heightened risks to growth and an inflation shock have prompted an earlier expectation for rate cuts.
On the other hand, Nomura believes that the ECB will have to act more quickly than the Fed in response to these tariffs, which have increased duties on the European Union to 20%. The brokerage has revised its growth forecast downward by 20 basis points and now anticipates that the ECB may reduce rates in April and June, resulting in a terminal rate of 2.00%.
Following the tariff announcement, traders are estimating a 70% chance of a quarter-point rate cut this month, with expectations of a depo rate at 1.75% by year-end.