The jury is still out on whether the US Federal Reserve will cut interest rates again this month amid conflicting reports about the state of the US economy.
The debate in Europe and regarding the European Central Bank’s (ECB) next move is all but closed. Few expect Frankfurt to change from the current course when it meets later this month.
“We’re in a good place,” ECB chief Christine Lagarde has said on several occasions recently, which is interpreted to mean inflation has stabilised at around 2 per cent, the bank’s target rate, and monetary policy will remain in a holding pattern until the data say different.
Euro zone price data, published on Tuesday, are expected to show headline inflation for bloc remaining at close to 2 per cent in November. The final reading before the ECB meets on December 18th is expected to confirm the no-change bias.
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That would leave policymakers able to focus instead on their pivotal quarterly forecasts, featuring the first outlook to stretch as far as 2028.
There were mixed signals from national reports across Europe this week, with stronger-than-expected inflation in Germany and Spain contrasting with weaker-than-anticipated numbers for France and Italy.
In the Republic, the harmonised index of consumer prices slipped more than 3 per cent for the first time in several months. But that hike owes as much to statistical base effects (year-on-year comparisons) as anything.
The inflation outlook hinges on the impact of US tariffs, which has yet to play out.
Some policymakers fear that the full extent of US tariffs is yet to be felt and that a strong euro will hurt exporters while pulling overall inflation below the ECB’s 2 per cent target. The recently released minutes of the ECB’s October meeting reveal increasingly divergent views on inflation risks.
“Members assessed that the outlook for inflation continued to be more uncertain than usual on account of the still volatile global trade policy environment,” the minutes said, noting some members viewed inflation risks as tilted to the downside while others viewed it as tilted to the upside over the medium term.
At the moment, markets are pricing no further interest rate cut in December.
