Latvia’s ECB Governing Council member Martins Kazaks indicated his support for an interest rate cut at next week’s ECB meeting, citing the belief that inflation problem “will soon end.”

However, Kazaks acknowledged the high level of uncertainty following the widely expected rate cut. He pointed to risks tied to US President-elect Donald Trump’s upcoming administration, noting that new tariffs could further weigh on Europe’s economy.

Despite these concerns, Kazaks maintained a cautiously optimistic view, stating that “Europe’s economy is going from its lowest point upwards.”

In an interview with the Financial Times, ECB Chief Economist Philip Lane indicated that the central is preparing to adjust its monetary policy approach as inflation moves closer to the 2% target.

While acknowledging that inflation has fallen near the desired level, Lane noted that “there is a little bit of distance to go,” especially with services inflation needing further reduction.

However, Lane emphasized that once the disinflation process is complete, monetary policy decisions will need to become “essentially forward-looking,” focusing on upcoming risks rather than relying on past data. He highlighted the importance of scanning the horizon for “new shocks” that could impact inflation pressures.

Over the course of next year, Lane expects a “transition to a more sustainable neighborhood of 2%,” signifying a shift from combating high inflation to maintaining price stability on a sustainable basis.

In an interview with the Financial Times, ECB President Christine Lagarde proposed a measured approach to handling U.S. President-elect Donald Trump’s tariff threats, favoring a “cheque book strategy” over outright retaliation.

Trump has outlined plans for sweeping tariffs, including a 60% levy on Chinese goods and a 10-20% range on imports from other countries, including Europe. Lagarde interpreted the range as a negotiating tactic, suggesting Trump is “open to discussion.”

Lagarde expressed preference for a “cheque book strategy” over a “pure retaliation strategy.” She explained that Europe could offer to purchase certain US goods and signal readiness for constructive dialogue.

“This is a better scenario than a pure retaliation strategy, which can lead to a tit-for-tat process where no one is really a winner,” she stated.

On the inflationary effects of tariffs, Lagarde admitted the outcome remains uncertain. She explained that the net impact on inflation would depend on various factors, including GDP shifts, currency movements, the specific goods targeted, and the duration of the tariffs.

“If anything, maybe it’s a little net inflationary in the short term,” she remarked, but emphasized the difficulty of forming a conclusive view without further details.

Full interview of ECB’s Lagarde here.