Officials in the United States are grappling with the risk that inflation could stay uncomfortably high, in part because of President Donald Trump’s tariffs. But in Europe, they worry that inflation could be too low.
On Thursday, Switzerland’s central bank lowered interest rates to zero, its sixth consecutive cut, after consumer prices fell 0.1% in May from a year earlier. Policymakers said the step was necessary to counter weak inflationary pressures, which can put a damper on economic growth.
The rate cut returns the region to the precipice of the unusual situation it was in for many years before the pandemic, when many central banks set rates at or below zero. The region was struggling with low inflation and sluggish growth stemming from a debt crisis, and rates were eventually raised significantly above zero to counter the postpandemic surge in inflation.
Price growth has cooled considerably in recent months, as the economic outlook has deteriorated in the face of Trump’s trade war.
Since April, when Trump raised tariffs on America’s biggest trading partners, the U.S. Federal Reserve has taken a cautious approach to interest rates. After a handful of cuts last year, Fed policymakers have held rates steady this year as they wait to see the impact of tariffs as well as the administration’s overall tax and spending policies. This has angered Trump, who regularly cites rate cuts in Europe when criticizing the Fed for not lowering borrowing costs.
In Europe, central bankers have repeatedly cut interest rates as price growth has slowed and economies have weakened. Stronger currencies have made imports cheaper, while European officials are worried about a flood of cheap goods from China that may be redirected from the United States, after tariffs were raised substantially on Chinese imports there.
“I don’t think there is any major disagreement or even debate around the inflationary pressure of tariffs in Europe,” said Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management. “There is a big question in the U.S.” about whether and when higher prices might be felt by consumers. But in Europe, he added, there is “a clear view” that the net effect is lower inflation.
In Switzerland, policymakers have been battling against a surge in the Swiss franc, which has gained about 10% against the U.S. dollar this year, as investors have flocked to the currency as a shelter from trade turmoil.
Martin Schlegel, the chair of the governing board of the Swiss National Bank, did not rule out the possibility that rates could be cut further, back into negative territory, where they last were during the coronavirus pandemic.
“We would not take the decision to go negative lightly,” Schlegel said, adding that such low interest rates are a challenge for savers and pensions funds. But, he added, “as a central bank, you can never exclude any measure.”
Before the pandemic, when some European central banks cut rates below zero, the lowest rate was in Switzerland, at negative 0.75%. Swiss policymakers maintained negative rates from 2015 to 2022.
Other central banks in Europe are not expected to return to such low interest rates anytime soon, but they are also trying to assess whether they need to respond more forcefully to counter the risk of low inflation and an economic slowdown.
On Wednesday, the central bank in Sweden, which like Switzerland had negative rates for a long stretch, cut rates, citing lower-than-expected inflation and the prospect of weak economic growth. Denmark’s central bank, which maintained a zero rate for many years, also cut rates this month.
The European Central Bank, which sets rates for the 20 countries that use the euro, two weeks ago cut rates for an eighth consecutive time after inflation slipped below its 2% target. Christine Lagarde, the president of the bank, said that rates were in a “good position” to navigate the economic uncertainty but also cautioned that the inflation outlook was more uncertain than usual.
The unsettled outlook also pushed Norway’s central bank to unexpectedly cut rates Thursday, its first reduction in more than five years. Policymakers said that inflation expectations for the coming year were now lower than previously expected, and the global economy was “fraught with uncertainties.”
In recent days, the escalating conflict in the Middle East has complicated the calculations for central banks. Oil prices have jumped amid rounds of air attacks between Israel and Iran, with analysts warning prices could surge higher.
On Thursday, the Bank of England left interest rates unchanged at 4.25% as some policymakers in London have remained concerned about lingering inflation. But they signaled that the outlook suggested they would probably continue to lower interest rates gradually in the future.
“The world is highly unpredictable,” Andrew Bailey, the governor of the Bank of England, said in a statement.
c.2025 The New York Times Company. This article originally appeared in The New York Times.
