Christine Lagarde, President of the European Central Bank, at the conference of the European Central Bank and its supervisors in Frankfurt, Germany, on March 20, 2024.
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European Central Bank President Christine Lagarde confirmed on Wednesday that policymakers will consider cutting interest rates in June, but charted an uncertain course after that.
“By June, we will have a new set of forecasts that will confirm whether the inflation path we predicted in our March forecast remains correct,” Lagarde said in a speech in Frankfurt.
The June meeting has been flagged as a potential turning point by many members of the ECB's governing council – which votes on interest rate moves – because it will be the first gathering for which data from spring wage negotiations is available. The European Central Bank remains alert about the potential inflationary effects of higher salaries.
Data available by June will also provide more information about the path of core inflation and the direction of the labor market, according to Lagarde.
“If these data reveal a sufficient degree of agreement between the path of core inflation and our expectations, and assuming that transmission remains strong, we will be able to move to the downturn in our policy cycle and make policy less restrictive,” she said. .
“But after that, domestic price pressures will still be visible. We expect services inflation, for example, to remain elevated through most of this year. So, there will be a period ahead in which we need to continually confirm that the incoming data supports our inflation expectations.”
Lagarde's message was generally very positive on the inflation path, despite growing geopolitical uncertainty and persistent domestic price pressures. Eurozone inflation slowed to 2.6% in February, although the services reading remained steady at 3.9%.
“Unlike previous phases of our policy cycle, there are reasons to believe that the expected contractionary path will continue,” Lagarde said, stressing confidence in the latest set of staff macroeconomic forecasts, which expect inflation to average 2.3% in 2024, at 2%. . In 2025, and 1.9% in 2026.
The euro zone central bank has kept interest rates steady since raising them to a record level in September. Until its meeting in March, the bank's message was that it was too early to discuss when to start cutting interest rates. It then meets in April and then June.
The market's attention is now turning to the number of cuts the European Central Bank is likely to implement over the course of this year. Financial markets indicate three cuts will be made by December, along with a possible fourth cut, according to Reuters data.
