Tom Lee, the head of research at Fundstrat Global Advisors, highlighted a crucial factor that could explain why the European Central Bank (ECB) has been able to cut interest rates while the U.S. Federal Reserve (Fed) has not.

What Happened: In a Monday interview with CNBC, Tom Lee explained that the European Central Bank's decision to cut interest rates stems from how it calculates core inflation—excluding housing costs.

He emphasized that this contrasts sharply with the U.S., where housing plays a major role in inflation data. According to Lee, if the U.S. used Europe's approach, its core CPI would actually appear lower than Europe's, potentially justifying rate cuts.

On that note, Lee anticipates a ‘dovish’ tilt from the Fed towards the end of the year. “I do think there should be a dovish tilt towards the Fed or it that’s the upside opportunity into year end as well,” stated Lee.

Notably, the ECB has reduced borrowing costs eight times since last June, amounting to a 2% decrease. This was done to support the struggling eurozone economy, which was already facing challenges before being further impacted by the U.S.’s unpredictable economic and trade policies.

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Why It Matters: Lee’s comments come in the wake of the Federal Reserve’s decision to hold on to the interest rates, a move that was widely anticipated. The Fed’s approach to interest rates has been a topic of much discussion recently. Federal Reserve Chair Jerome Powell stated that while inflation has decreased from its 2022 peak, it remains “somewhat elevated,” and the central bank is not yet ready to make any adjustments. However, a “significant majority” of committee members expect rate cuts later this year.

On Monday,  Fed Governor Michelle Bowman voiced her support for a potential rate cut in July, provided that inflation remains subdued, echoing the opinion of another Fed Governor, Christopher Waller.

Earlier this month, President Donald Trump renewed his criticism of Jerome Powell, urging him to cut interest rates following a report from ADP showing a slowdown in May job growth. Trump emphasized that Europe has already cut rates multiple times, saying, “‘Too Late' Powell must now lower the rate.”

READ MORE: Elizabeth Warren Says Americans ‘Deserve’ Lower Interest Rates, But Trump’s ‘Reckless’ Tariffs Stand In The Way: ‘The Fed Is Getting Boxed Out’

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.