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The divergence in monetary policy between the Federal Reserve and the European Central Bank is raising concerns about financial stability and growth in a fragmented global economy. While the Fed maintains stable interest rates amid strong US economic performance, the ECB is continuing its strategy of rate cuts to combat weak eurozone growth. This discrepancy is strengthening the dollar and attracting capital flows to the US, although the dollar’s appreciation has been inconsistent in recent weeks. Meanwhile, geopolitical fragmentation and protectionism are exacerbating these issues, weakening global policy coordination and generating bond market volatility. The future of European monetary policy will depend heavily on how trade tensions with the US, increased European defense spending, and Germany’s expansive fiscal package will influence inflation and growth. While additional rate cuts remain an option, there is growing pressure on the ECB to reconsider its strategy for economic reactivation, especially if inflation accelerates due to fiscal expansion or higher imported inflation from a weaker euro. Balancing these factors will be critical to maintaining financial stability and supporting economic growth in the eurozone.

Carbó, S. y F. Rodríguez (2025). «Monetary decoupling in a fragmented world: How far will the ECB’s interest rate cuts go?». SEFO (Spanish and International Economic & Financial Outlook) 14, n.º 2: 5-11.