ECB President Christine Lagarde emphasized at the latest press conference on interest rate decisions last Thursday that it would be „premature to talk about interest rate cuts.“

Future interest rate decisions would be based on economic data, not on a specific date, Lagarde continued.

Let’s speak plainly: the European Central Bank (ECB) cannot afford to lower interest rates because inflation is still too high and there is a growing risk of it rising again.

You only need to look at the often exaggerated wage settlements of recent months, which will soon find their way into prices and therefore inflation data.

ECB cannot lower interest rates due to inflation The ECB acknowledges this dilemma itself. Of course, as always, in such a convoluted way that no normal person understands. Quote from Lagarde: The ECB wants to see further progress in weakening inflation before it can be sure that the inflation target of 2% will be reached again.

There hasn’t been much progress in this regard lately. After a preliminary low in November, consumer price inflation in the eurozone unexpectedly rose again in December – to 2.9%. We can only hope that this does not lead to a new upward trend. This would put the ECB in a difficult situation.

Sluggish economy urgently needs low interest rates In fact, interest rates should be lowered soon because the economy is sluggish. The weak Ifo business climate index in Germany, which has been falling since mid-2021 (!), is an indication of this. The sentiment of companies has deteriorated even further after the decline at the end of last year. Lower interest rates could provide some support here.

But this is not possible due to the rising inflation. The ECB is caught in a dilemma. Either it fights the rising inflation with persistently high interest rates and thereby risks a (renewed) recession in weak-growth countries like Germany. Or it lowers interest rates and accepts a resurgence of inflation.

Or it takes a middle ground (only small interest rate cuts) – and risks, in the worst case, stagflation, i.e. a downturn along with inflation.

Why an interest rate cut would be bad for euro stocks In any case, as an investor, you should not hope that lower interest rates in the eurozone will mean gains for European stocks. Because as soon as interest rate cuts are forced by economic weakness, this has a very negative effect on stock prices. This is always the case, everywhere.

The best thing you can do in this situation is to move to markets that are not in a potential stagflation dilemma. These are currently mainly the US, and in my opinion, also Japan.

How to do this and which stocks or indices you should then invest in these (possibly unfamiliar to you) markets can only be found in my stock market service Voigts Global Profits.