On Thursday, 11 January, the European Central Bank’s (ECB) President Christine Lagarde told France 2 TV that the authority is “very confident” that rates will begin to decline as soon as eurozone inflation data reaches the 2% goal. Following Lagarde’s positive, albeit vague, announcement markets adjusted their bets on rate cuts, favouring six quarter-point reductions in the coming year.
European Central Bank suggests rate cuts could come soon
The reductions come at a time when tensions between ECB officials and the market are high. Investors, however, continue to predict rate cuts as soon as March/April this year; policymakers are opting for what they term a more realistic timeframe of mid-year. Market and authority attention will now be fixed on Chief Economist Philip Lane, who is scheduled to speak on the matter late Friday afternoon.
Despite inflation data remaining below 3% at the beginning of January, it seems that the ECB is waiting for wage increase data for Q1 and, only then will cuts begin to take shape but, market sentiment remains hopeful considering an uptick in inflation during December 2023 couldn’t push the percentage higher than 3%.
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Lagarde dismissed the notion of a serious recession in Europe and declared the worst part of the fight against inflation over. She emphasized the role of salaries in this context, noting that negotiations and collective-bargaining agreements are driving increases above inflation figures. Lagarde anticipates a gradual catch-up phase over two or three years.
As well as announcing potential rate cuts in the near future, Lagarde also dismissed the notion of a serious eurozone recession, suggesting that the worst battle against inflation has been won.
