ECB Insight: Lagarde, Touting High Uncertainty, Sounds Hawkish

6 March 2025

By David Barwick – FRANKFURT (Econostream) – If the natural baseline for assessing European Central Bank President Christine Lagarde’s performance at Thursday’s press conference as hawkish or dovish is her communication on other recent such occasions, then we must conclude that she was hawkish today.

That is despite the inevitability of a certain dialling back of previous dovishness; the simple fact of the ECB having made more progress in terms of both disinflation (which she nonetheless confirmed was well on track) and removing policy restriction couldn’t simply be ignored, which is why we said Tuesday that shifting circumstances would compel a change of language.

At the time, however, we expected Lagarde to be dovish in the sense of not allowing the hawkishness inherent in recognising this progress to dominate. And yet, dominate it did, as we see it.

It would be myopic to consider the question abstracting from recent developments relevant to monetary policy, which, as she herself noted, have been coming from all directions literally in the hours leading up to the Governing Council’s gathering.

Although the increased energy prices as of the cutoff date for the new projections may have led to an outcome that would nominally justify concern, we don’t think policymakers are preoccupied by this, a view to which Bank of Spain Governor José Luis Escrivá’s comments directly after the press conference lend credence.

Very realistic prospects of vast government spending would tend to prop up growth and inflation and are thus a different matter. In this regard, the news of the last 36 hours would be a natural reason for a more hawkish mood to grip the Governing Council at the last minute.

Here we recall her comment a short while ago that ‘from one day to the other, the situation changes dramatically.’ Precisely fiscal developments will have been at the forefront of her mind, along with the fact that the proposed spending orgy ‘would be supportive of European growth at large and would be a boost to the European economy’, as she said.

That said, we wouldn’t rush to overinterpret Lagarde. While ‘huge uncertainty’, as she called it, makes it folly to point clearly in one direction (which had stopped being wise and which we no longer expected her to say today anyway), it doesn’t necessarily point in another.

In a sense, her hands were tied by the fact that for perhaps the first time, she genuinely avoided anything that didn’t really correspond to the prevailing extreme uncertainty, anything that would contradict the ECB’s data-driven, meeting-by-meeting approach to monetary policy.

Under those circumstances, the sudden refusal to confirm that the direction is clear becomes logically tantamount to allowing the possibility of previously tail-risk scenarios, and it becomes impossible by definition to qualify this refusal, to convey the idea that previous expectations both still hold after all and have simultaneously become open questions.

We continue to consider a cut in at least April or June to be likely, and still see some possibility of both. The scenario in which a June cut follows an April pause has however undoubtedly become more probable than it was.

Indeed, when we wrote on Tuesday that the ECB ought today to call rates ‘still restrictive, but less so’ – identical in meaning to the chosen language that rates are ‘becoming meaningfully less restrictive’ – one of our arguments was precisely the value in facilitating a pause in April.

At this point, whether the ECB will stand pat on 17 April is necessarily up in the air. We can note again the possibility, in the event of indecision six weeks hence, for policymakers to invoke the absence of new projections and postpone the debate until June.

But with pertinent developments raining down on the policy landscape without let-up, the best guesses for the moment can only be considered to be very subject to change.