ECB Insight: Waiting for September Amid Trump’s Brinkmanship

22 July 2025

By David Barwick – FRANKFURT (Econostream) – Our starting point in considering where the European Central Bank now stands is that we assign only limited weight to US President Donald Trump’s 12 July announcement.

While the ultimate outcome of the trade dispute is a key parameter that will at least contribute to the course of monetary policy, his declared intention to impose a 30% tariff on imports from Mexico and the European Union as of 1 August — more in the event of retaliation — amounts to another salvo in an ongoing dispute.

To consider it definitive would presume a level of credulity not typical of the ECB — namely, overlooking Trump’s fondness for making brinkmanship an integral part of negotiating, and of his generally erratic approach to policymaking.

That is, nothing has really changed yet, which leaves the ECB no more likely to seriously contemplate cutting rates on Thursday than it would have been on 11 July. Only the small minority of Council members who would have already been happy to continue easing without letup would venture to make an argument out of Trump’s bluster, and they are fully aware that they won’t get far.

The ECB will also continue to play its cards close to its chest regarding September. If little has changed since June 5, the ECB remains in what President Christine Lagarde called ‘a good position to navigate the uncertain conditions that will be coming up’, and we see no grounds for the ECB to deviate from its current strategic ambiguity about what could happen seven weeks on, a question that remains open even for the ECB itself.

In short, minus the lack of any change this month to the monetary policy stance, we largely expect a replay of the previous press conference. There is little basis on which to discuss the probability of a move in September, and the ECB is as attached as ever to its data-dependent, meeting-by-meeting approach to policymaking.

With regard to the economy, Lagarde seems likely to say that developments have been broadly in line with what the ECB was expecting seven weeks ago. There is hardly reason for much change to the paragraph of the monetary policy statement dedicated to factors ‘keeping the economy resilient’.

For that matter, the ECB is also likely to continue to expect that ‘inflation will stabilise sustainably at our 2% medium-term target’ and to assess the balance of risks much as it did previously, suggesting that other large swathes of the last statement can also be recycled.

With near certainty, the euro’s appreciation will come up in the Q&A. Here, we are not sure Lagarde will be able to repeat the evasiveness of her previous answer, yet neither will she echo Vice President Luis de Guindos’ assertion of 1 July that $1.20 is ‘perfectly acceptable’, but anything higher ‘much more complicated’.

We see little room for a surprise that would not be a very big surprise, which by definition we are far from expecting. It is legitimate to ask whether those who wanted to cut again before Trump’s 12 July announcement will secure any concession. There is some potential for an upgrade of the downside inflation risk scenario — the euro is up some 2% since the last monetary policy decision — but others could counter that upside inflation risks have also risen.

In the end, the focus has to remain on September, about which, as noted, we do not expect this Thursday’s meeting to provide materially greater clarity. After considering a September cut reasonably likely directly following the last monetary policy decision, our expectations diminished slowly but steadily amid the drumbeat of sceptical policymaker pronouncements.

Our 4 July member-by-member review of the Council left things very much up in the air, but our 11 July interview with Executive Board member Isabel Schnabel and previous comments by Council members such as Croatian National Bank Governor Boris Vujčić and even Banca d’Italia Governor Fabio Panetta led us to regard, as we assessed on the day we published the Schnabel interview, ‘a continuation of the July pause as slightly more likely than a September cut.’

As of today, we can’t see much reason to change that other than the possibility of higher-than-expected US tariffs. However, this scenario has yet to materialise, and may be averted.

If nothing else, therefore, Trump’s 30% broadside was a reminder that a happy end to the trade conflict is far from assured. And while higher tariffs would tend to contribute price pressures, we think concerns about the hit to growth would ultimately lead the ECB to deem a rate cut the appropriate response.

We suppose that Trump won’t grant yet another stay of reprieve, and that by the time 11 September rolls around — and probably much sooner — we will have some of the clarity currently lacking. For now, circumspection and noncommitment remain the ECB’s dominant mode, and will likely define Thursday.