Where Are the US and European Economies Heading Amid Policy Tensions and Trade Uncertainties?​

In November 2025, the economies of the United States and Europe are at a critical juncture intertwined with policy choices and external shocks. After the Federal Reserve (Fed) implemented an interest rate cut in October, internal divisions over the subsequent easing path have intensified; while the European Central Bank (ECB) has kept interest rates unchanged, it faces prominent challenges in balancing growth resilience and inflation risks. More notably, the lingering uncertainty surrounding trade policies has emerged as the biggest variable disrupting the economic prospects of both regions.​

The US economy is exhibiting dual characteristics of "escalating policy disputes and slowing growth momentum". Following the Fed's 如期 25-basis-point interest rate cut in October, officials' stances have diverged sharply: Governor Stephen Milan stated explicitly that monetary policy is "excessively tight" and called for a decisive 50-basis-point rate cut if data meets expectations, arguing that stress signals in the credit market are clear evidence of overly tight policies. In contrast, Governor Lisa Cook adopted a cautious stance, emphasizing that no decision has been made regarding a December rate cut and that a balance must be struck between the dual goals of "low unemployment" and "stable inflation". Market expectations for the policy path have thus fluctuated. According to the CME FedWatch Tool, the probability of a 25-basis-point rate cut in December has risen to 67.3%, while the likelihood of keeping rates unchanged remains at 32.7%.​

Concerns on the growth front have further complicated policy-making. Nomura's latest report sharply lowered its forecast for US real GDP growth in the fourth quarter of 2025 from 1.5% to 0.6%, with the core reason being that the impact of tariff policies has far exceeded expectations. The institution pointed out that higher tariffs will not only push up inflationary pressures (the year-end core PCE inflation forecast has been revised up to 4.5%) but also suppress the job market. It is expected that nonfarm payroll employment will increase by an average of only 90,000 per month for the remainder of this year, and the unemployment rate will rise to 4.4%. More notably, on November 5, the US Supreme Court held oral arguments on the legality of tariffs imposed during the Trump era. Although a ruling is still months away, it has significantly heightened market concerns about trade policy uncertainty.​

Structural risks also cannot be ignored. A research report from Huaxi Securities shows that the US has launched a large-scale medium-term fiscal expansion, and the "America First" Act is expected to add approximately $3.4 trillion to the federal deficit over a decade. The expanding debt has become a "major concern" for the market. Against this backdrop, the Fed's decision to end its balance sheet reduction (quantitative tightening, QT) in December is interpreted as a compromise to balance monetary easing and fiscal stability, though the effectiveness of this policy remains to be seen.​

Compared with the US's fragmented policy stance, the ECB's position is more unified, yet the fragility of its economic recovery has not diminished. In November, the ECB kept its deposit rate unchanged at 2% for the third consecutive time. Executive Board member Joachim Nagel clearly stated that "since the release of the economic forecast in September, there has been no fundamental change in the data" and that the ECB will "keep all options on the table" for its December meeting. This statement not only aligns with the reality of economic fundamentals — the Eurozone's Q3 GDP growth of 0.2% exceeded expectations, and the October PMI index indicates a solid start to the fourth quarter — but also reflects caution regarding the growth outlook.​

The resilience of the European economy mainly stems from policy stimulus and partial improvements. Lower interest rates have driven growth in household and corporate credit, and Germany, supported by increased spending on infrastructure and national defense, is believed to have "embarked on a path of moderate growth". However, structural bottlenecks remain unaddressed: long-standing issues such as tight energy supply and immigration continue to constrain the economy, the industrial sector remains sluggish, and the recovery of Germany's manufacturing industry is particularly slow. Nomura lowered its 2025 GDP growth forecast for the Eurozone by 20 basis points, precisely taking these endogenous constraints into account.​

Inflation and trade risks pose dual challenges to the European economy. Although the current core CPI hovers around the 2% target, some dovish officials worry that prolonged weak growth may lead to inflation remaining below the target for an extended period, creating deflationary pressures. Furthermore, the persistent tariff threats from the US have weighed heavily on Europe's export-oriented economy — while the US-EU trade agreement reached in August set a 15% tariff rate for goods exported to the US, key industries such as steel and automobiles still face the risk of a 25% tariff hike, which has severely dampened business confidence and investment willingness.