Finland’s ECB Governing Council member Olli Rehn highlighted growing risks to Europe’s economic outlook with the uncertainty over trade policy as a key downside factor.

Rehn warned that Europe must be prepared to respond to potential trade conflicts with the US, emphasizing that while “negotiation is preferable,” EU’s position could be strengthened by demonstrating readiness to implement “countermeasures” against any US tariff threats.

Rehn also provided clarity on ECB’s monetary policy direction, stating it is now clearly leaning toward further easing. However, the “speed and scale of rate cuts” will remain data-dependent and decided at each meeting based on a thorough assessment of economic developments.

ECB President Christine Lagarde’s speech today marked a departure from previous guidance shaped by high inflation and significant uncertainty.

Lagarde highlighted that the earlier approach, which aimed to maintain restrictive rates “for as long as necessary,” is no longer aligned with the ECB’s evolving outlook for inflation and risk balance.

However, with “disinflation process well on track” and growth risks becoming more pronounced, ECB now aims for an “appropriate” policy approach.

She reiterated that if data continues to confirm their expectations, ECB expects to lower rates further.

Full speech of ECB’s Lagarde here.

A day after ECB reduced its deposit rate by 25 basis points to 3.00%, key ECB officials provided insights into the central bank’s outlook, reinforcing expectations for further easing in 2025. Comments from various members of the Governing Council suggest a shared commitment to a cautious but consistent approach to policy normalization.

French ECB Governing Council member François Villeroy de Galhau explicitly stated, “There will be more rate cuts next year, more rate cuts plural,” emphasizing alignment with market forecasts. The swap market currently prices around 120 basis points of rate reductions by the end of 2025.

Similarly, Spanish member José Luis Escrivá noted the prevailing consensus for “moves of 25 basis points downwards,” allowing for regular assessment of disinflationary progress.

Irish ECB member Gabriel Makhlouf highlighted the clarity in the rate trajectory while maintaining a data-driven approach: “The exact pace and number of further reductions depend on inflation outturns continuing to move in line with our projections.”

Portuguese member Mário Centeno added that rates could approach the 2% level within a few quarters, barring new economic shocks.

Comments from Luxembourg’s Gaston Reinesch pointed to the possibility of reaching a 2.5% deposit rate by early spring, implying consecutive 25bps cuts in January and March.

Latvian member Martins Kazaks kept the door open for larger adjustments if warranted, while Austria’s Robert Holzmann reiterated alignment with forecasts, noting that rates would ultimately settle closer to neutral.