ECB Vice President Luis de Guindos acknowledged that US President Donald Trump’s tariff policies have made the central bank’s monetary policy decisions more challenging, creating an environment of increased uncertainty.

Speaking to Spanish radio Onda Cero, de Guindos noted that the “clarity regarding future decisions” has diminished in a situation “much more opaque than just six months ago.”

He also pushed back ECB’s inflation target timeline, stating that inflation is now expected to reach the 2% goal in Q1 2026, later than the previous mid-2025 projection, due to the impact of higher energy prices.

Despite these concerns, de Guindos remained cautiously optimistic that “everything is moving in the right direction.” While tariffs could lead to some short-term inflationary effects, he suggested that slower economic activity resulting from trade disruptions could ultimately offset these pressures over time.

ECB Vice President Luis de Guindos expressed confidence that inflation is on track to reach the 2% target “the end of this year or the beginning of next.” He added that “all indicators for services and underlying inflation are moving in the right direction.”

However, he warned that uncertainty in the global economy is “even higher than it was during the pandemic”, with mounting geopolitical risks and shifting trade policies. A key concern is the more protectionist stance of the new US. administration, which de Guindos sees as a major departure from multilateral cooperation. “This is a very important change, and a big source of uncertainty,” he warned.

Despite improving conditions—real wages rising, inflation easing, and financing conditions loosening—consumption in the Eurozone remains weak. De Guindos attributed this sluggish demand to consumer sentiment, noting that households are hesitant to spend due to fears about the medium-term economic outlook. “The possibility of a trade war or wider geopolitical conflict has an impact on consumer confidence,” he noted.

On the fiscal front, de Guindos acknowledged the massive defense spending plans by European governments as “certainly a decision in the right direction”. Nevertheless, he cautioned that it’s too early to determine the full economic impact. While increased defense investment is likely to support growth, he believes it will have only a limited effect on inflation.

ECB President Christine Lagarde highlighted the “exceptionally high” level of global uncertainty in her speech today, highlighting the challenges posed by trade policy shifts and geopolitical tensions.

She noted that an index measuring trade policy uncertainty is now close to 350—more than six times its average value since 2021. Geopolitical risk indicators are at levels unseen since the Cold War, aside from periods of war and major terrorist attacks.

Against this backdrop, Lagarde emphasized that ECB’s primary focus remains on maintaining price stability over the medium term, stressing that this commitment is “more important than ever” in an unpredictable economic environment.

To achieve this, Lagarde stressed the need for “agility to respond to new shocks” while maintaining a structured policy framework that prevents “short-sighted reactions and unbridled discretion”.

She also noted the importance of combining agility with clarity, stating that while the ECB may not always be able to provide certainty about the exact path of interest rates, it can ensure “clarity about our reaction function”.

Full speech of ECB’s Lagarde here.