ECB Insight: Still in a Good Place

9 September 2025

By David Barwick – FRANKFURT (Econostream) – Thursday’s European Central Bank interest rate decision holds very little suspense, not one Governing Council member having openly questioned the wait-and-see mode for the moment. The real question is whether December brings another cut.

This puts the focus on how President Christine Lagarde frames the outlook and whether markets come away convinced that the rate-cutting cycle is at an end or with renewed hopes of a year-end cut. But here too, July 24 is likely to amount to a blueprint.

At that time, Lagarde struck a hawkish note, sounding more aligned than usual with Executive Board member Isabel Schnabel, who in our interview earlier in the month had roundly dismissed the notion of more rate cuts and recently reiterated her view.

But to describe the ECB as hawkish risks mischaracterizing Council sentiment. The perception is partly just a byproduct of rigid adherence to the meeting-by-meeting, data-dependent approach that shuns forward guidance. Avoiding guidance at a time when it would mean endorsing expectations of further easing appears hawkish. That is not entirely the same as a shift in bias.

Still, not just the less dovish members have seemed at times disinclined to resist the idea that the end of the road has been reached. Executive Board member Piero Cipollone avoided stoking speculation about more cuts this year, while Banco de España Governor José Luis Escrivá declared that the rate-cutting cycle was essentially over and policy “normalised.”

All that said, we envision Lagarde being a touch less rigid this week. True, her few comments since the last such occasion suggested no great preoccupation with the possible impact of US tariffs and highlighted European labor market resilience.

However, the account of the July meeting didn’t quite corroborate her tone on July 24, and beneath the surface, concerns about the growth outlook linger – and that against the backdrop of mounting French political instability. Though not decisive for policy (yet), the turbulence adds a layer of uncertainty that could make it harder for Lagarde to sound overly upbeat.

We nonetheless expect her to repeat that “we are in a good place”. Uttered by her six times at the last press conference and echoed by various others, there is no apparent reason to retire the phrase already, and doing so would probably go too far in the other direction. As Latvijas Banka Governor Mārtiņš Kazāks said, there was “not sufficiently big news to lead to a rethink.”

At the same time, we expect her to once again shun giving guidance and thus any direct encouragement of rate cut expectations. It matters little that some, whether Banque de France Governor François Villeroy de Galhau, Bank of Finland Governor Olli Rehn or, in our interview last week, Bank of Lithuania Chairman Gediminas Šimkus, sound very far from closing the door on further easing.

But not in September. That is off the table. As Schnabel put it just days ago, “I see no reason to adjust the policy stance in either direction. Interest rates are in a good place … we may already be mildly accommodative.” Vice President Luis de Guindos made the same point in his own way, calling the current level “appropriate given the main factors.” The consistency of such remarks across the spectrum underlines how comfortable the Council is with its current wait-and-see mode.

All the same, the debate about whether rates have bottomed out is not over. The Governing Council has by no means declared the terminal rate officially reached, and members lately seem to be warming anew to the possibility of yet another cut, with Šimkus saying that he would “not be surprised” by a December cut and even that “additional negative information might lead us to discuss a cut again in October.”

His words capture the essence of the ECB’s stance: no cut this week, a cut in October unlikely in the absence of a significant change in the environment, and everything beyond that wide open, with optionality correspondingly preserved.

December is thus where the story gets more interesting. This week’s projections are likely to show little change (Lagarde predicted just a “small impact” on European growth from US tariffs), but December will also bring new figures, including for 2028.

There should also be greater clarity by year’s end on the trajectory of U.S. interest rates. Several members — Rehn, Villeroy de Galhau, Šimkus, Cipollone and Bank of Greece Governor Yannis Stournaras among them — could well see scope for easing then, depending on the intervening data.

Others, including Kazāks, Banca d’Italia Governor Fabio Panetta and Central Bank of Malta Governor Edward Scicluna, might also be open. But even for December, it is virtually impossible to attach a probability.

As one Council member observed in private, a key distinction is between a “big shock” and a “gradual deterioration” — only the former would force the ECB’s hand quickly, suggesting that even if more easing is yet to come, attaching a date to it is hazardous.

There may be bigger-picture factors making it easier for Lagarde to sound just a bit less hawkish at the moment. The retirement a week ago of the Council’s most hawkish member – Austrian National Bank Governor Robert Holzmann, replaced by a more moderate Martin Kocher – is the second exit in as many meetings of prominent hawks (de Nederlandsche Bank’s Klaas Knot having been succeeded as of July 1 by Olaf Sleijpen).

Moreover, with the summer holidays now out of the way and de Guindos’ term set to expire next May 31, some Council members may tailor their messaging as succession politics heat up. To the extent personal positioning colors communication, this should encourage dovishness. But both these factors are of marginal significance for actual outcomes at the moment.

Lagarde’s task this week is to navigate the crosscurrents without signalling too much in either direction. She is likely to sound a touch less upbeat than in July, but the underlying message will not change: the ECB is watching and waiting, data-dependent, and not ruling anything out.

External risks will inevitably surface in the press conference. Lagarde herself recently acknowledged that she was watching French spreads “very attentively” amid political turbulence, while cautioning against any impression that the ECB was influenced by national politics.

The bottom line is that Thursday’s decision will deliver no policy change, and Lagarde will hew closely to the established line. The Council is not eager to cut again soon, but it is equally reluctant to close the door. October would take a shock; December is the first natural window. Until then, the ECB will sit tight, stress its readiness, and let the economy and data decide whether, as Šimkus quipped, Santa Claus shows up with scissors.