U.S. Economic Outlook Amidst Trade War

(Reuters) – The United States may face a recession due to global trade war impacts, affecting the euro zone as well, albeit to a lesser extent, stated French central bank chief Francois Villeroy de Galhau on Wednesday.

The U.S. has implemented numerous tariffs globally; although some have been suspended, many remain, creating uncertainty that affects confidence, investment, and output.

> “The new measures announced as well as the increasing unpredictability, constitute a major negative shock to the global economy, but first and foremost to the U.S. economy,” Villeroy noted during his speech at the Atlantic Council in Washington. He warned of a potential U.S. recession, a notion once considered unthinkable just three months prior.

He mentioned that while the euro zone’s impact would be less severe, it could still reduce its 2025 GDP by at least a quarter of a percentage point.

Some economists suggest that a trade war may lead to increased inflation; however, Villeroy downplayed this, suggesting it could actually lower prices.

> “There is currently no inflationary risk in Europe,” he declared, adding that the overall impact of a trade war on inflation remains uncertain but could trend downward.

He also commented on the potential turmoil in financial markets resulting from further attacks on the independence and credibility of central banks.

U.S. President Donald Trump has been vocally critical of Federal Reserve Chair Jerome Powell recently but backed off threats to dismiss him this week, which helped soothe anxious financial markets concerned about the Fed’s autonomy.

> “Let me … express again my gratitude to Fed’s Chair Powell, who admirably shows how a central banker must behave,” Villeroy concluded.