In an op-ed published today, ECB Governing Council member Peter Kazimir addressed market expectations for two additional rate cuts before the end of the year. He stated that while these market bets are “not entirely misplaced,” they should not be considered a “given or a baseline scenario.”
Kazimir highlighted that inflation is “on track” to return to the target but cautioned, “we are clearly not there yet.” He emphasized the persistent risks of inflationary pressures due to various domestic and global factors. “There is still a non-negligible risk of inflationary pressures re-emerging,” he noted.
“There is no need to rush our decisions,” Kazimir added, advising a measured approach. “Enjoy the summer lull and wait for the much-anticipated September ‘health check.’ The upcoming data, combined with fresh forecasts, will set the stage for any necessary decisions.”
Bundesbank urges prudence: further rate reductions must be judiciously evaluated
Bundesbank’s latest monthly report indicates that while some factors are bolstering the economy, they are simultaneously complicating efforts to bring inflation down to target.
“The labor markets are still operating at high capacity, wage growth is brisk, and prices are rising strongly, particularly in the service sector,” the report stated.
Bundesbank highlighted that “inflationary risks also predominate on the supply side.” Services inflation is expected to decline only modestly in the coming months, with the overall price index likely to fluctuate around current levels.
Given these conditions, the Bundesbank advised that “possible further interest rate cuts should therefore be carefully considered in light of current data.”
Bundesbank anticipates the economy to “strengthen somewhat” in the Q3. Private consumption is expected to “pick up a little more speed” driven by strongly rising wages, falling inflation, and a robust labor market, which should continue to support consumer spending.
However, the report also cautioned that industrial activity is likely to improve “only hesitantly” due to weak demand, which could result in GDP growth for Q3 falling slightly short of the expectations from June forecast.