Well, that’s the potential disagreement that could affect the interest rate cut debate in the coming months. Reports suggest that some policymakers want to focus more on recession fears while others insist on holding firm on the inflation battle.
It’s pretty much certain that interest rates will be cut in September, but what comes after that may not be so certain, it seems.
Future decisions are likely to be “more complex” as private discussions reveal differences in views among decision-makers, the sources say.
Doves, who are said to be in the minority, argue that the economy is much weaker than previously thought. This will precipitate weaker price pressures and a stronger economic slowdown. They argue that the European Central Bank may be too late to cut interest rates to protect the economy.
Meanwhile, hawks argue that they must continue until the inflation target is met. That would even mean postponing any major policy easing until 2026, because they fear that failure to do so would also jeopardize the ECB’s credibility.
Sources added that September appears to be done, but the outlook for October remains uncertain. “The quarterly cuts are serving us well, and the data doesn’t support accelerating the pace of cuts,” one source said.
So, we may see Lagarde stick to more or less the same statement this month. This means that the ECB’s approach is more of a “meeting after meeting” approach, so as not to ignore October and not confirm any consecutive moves either.
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