Christine Lagarde, President of the European Central Bank (ECB), announced the decision to lower the key ECB interest rates by 25 basis points during the monetary policy meeting of the Governing Council held on 5-6 June 2024. The account of the meeting revealed that financial markets had converged towards a more gradual easing cycle and high-for-longer interest rates. The decision to lower rates was based on the positive outlook for the euro area economy, with GDP growing by 0.3% in the first quarter of 2024 and expected to strengthen in the coming quarters. However, concerns were raised about the risks of deglobalization and protectionism in the global trading system. Inflation had increased to 2.6% in May, driven by energy and food prices, but underlying inflation indicators had eased further. Wage growth remained elevated, and the inflation outlook was seen as converging to target in a timely and sustained manner, although risks to the outlook remained balanced [4e8b6373].
Lagarde's cautious approach to rate cuts was evident in her statement that the ECB needs more time to determine if inflation is on track to reach 2% and that rate cuts are not urgent. She emphasized the importance of gathering sufficient data to confirm that the risks of above-target inflation have passed. Lagarde also highlighted uncertainties regarding future inflation, particularly in terms of how profits, wages, and productivity will evolve and whether the economy will be impacted by new supply-side shocks [4e8b6373] [eb48116b] [21e93d32].
Investors are betting that inflation concerns will outweigh recession fears, and they expect the ECB to be slow in cutting rates. The inflation outlook remains uncertain, with price growth expected to hover around 2.5% for the rest of the year before falling back to the ECB's 2% target by the end of 2025 [eb48116b].
Lagarde's approach involves engaging with her peers individually to ensure consensus and taking the mood of the governing council. She aims to shift the ECB's focus from activism to alertness and maintain discipline while allowing everyone to have their say. Lagarde's background in government and her pragmatic approach to policy are seen as advantages. However, she faces criticism for the ECB's delay in raising rates and the market's sometimes misunderstanding of her actions [a3f76cba]. Despite the challenges, Lagarde has committed to staying on as ECB president until 2027. Her tenure will involve making difficult decisions and navigating the shifting economic landscape [a3f76cba].
ECB President Christine Lagarde has stated that the European Central Bank (ECB) aims to bring inflation down to its target of 2% by 2025. Lagarde emphasized the importance of maintaining price stability and stated that the ECB is committed to using all available tools to achieve its inflation goal. She also mentioned that the ECB will conduct a comprehensive review of its monetary policy strategy to ensure its effectiveness in the current economic environment. Lagarde's comments come as the ECB continues to grapple with low inflation and sluggish economic growth in the Eurozone [21e93d32].
The EU is facing multiple challenges including the European Central Bank cutting interest rates, an increase in support for right-wing parties in the European Parliament elections, political uncertainty in Germany and France, external threats from Russia, the Middle East conflict, climate crisis, US presidential election, and China's increasing influence. The ECB cut interest rates due to disinflation in the eurozone, with projected economic growth of 0.9% in 2024, 1.4% in 2025, and 1.6% in 2026. Inflation is projected to average 2.5% in 2024, 2.2% in 2025, and 1.9% in 2026. The EU is facing these challenges from a position of weakness and may need statesmanship from political leaders to address them [f2081191].
According to the accounts of their meeting, European Central Bank (ECB) policymakers expressed concerns about stalling disinflation and the difficulty of bringing inflation back to the 2% target by 2025. Some members felt that the available data did not increase their confidence in inflation converging to the target by 2025, suggesting that cutting interest rates was not fully in line with the principle of data-dependence. However, the majority of policymakers agreed with the rate cut. The key worry is that inflation remains choppy and wage growth is high, which could perpetuate domestic inflation and keep overall price growth above the ECB's target. Investors expect further rate cuts this year and by the end of 2025. September is seen as a possibility for the next rate cut. The ECB's July 18 meeting is not expected to bring any changes [355739a2].