ECB Insight: Lagarde’s Balanced-Risks Message Leaves Doves with Nothing to Hold Onto

11 September 2025

By David Barwick – FRANKFURT (Econostream) – European Central Bank President Christine Lagarde on Thursday set the stage for ECB interest rates to persist at 2% into 2026 amid a somewhat brighter economic outlook, while nonetheless refusing to foreclose on any option.

“Risks to economic growth have become more balanced,” she said in opening the risk assessment section of the monetary policy statement, a clear upgrade from July 24’s opener that “risks to economic growth remain tilted to the downside.”

Queried about this key difference, Lagarde framed the evolution of risks as an improvement versus early June rather than late July and essentially attributed it to the trade deal with the US, thanks to which “two things have moved out of our radar screen when it comes to downside risk,” she said.

In particular, the risk of European retaliation was now off the table, and trade uncertainty in general had “clearly diminished”, she said.

There were still risks, she hastened to note, for which reason the ECB was justified in its meeting-by-meeting, data-driven approach to policymaking. Consistent with this, Lagarde was less willing than ever to be drawn out as to the prospects for further easing – or a lack thereof.

Still, her assertion that “the disinflationary process is over” amounted more clearly to a declaration of “mission accomplished” than anything uttered by her eight weeks ago. The July version – that policymakers had “essentially closed that disinflationary cycle that we battled over the last months” – was tentative, today’s emphatic.

As expected, she reiterated the by-now familiar refrain that the ECB is “in a good place” but underscored that this was not to be taken for granted.

“[I]n the same breath of air, I say that we decide meeting by meeting, that we are data-dependent, and that we will decide accordingly in order to make sure that we stay in a good place,” she said. “We continue to be in a good place, but we are not on a predetermined path.”

The overall message was clear: the ECB wants to remain ready without prejudice to react to unforeseeable developments, but what it is currently foreseeing would not justify a policy change.

Whereas December had previously been a potential moment for another cut (though not our base case) the likelihood of this now has to be regarded as substantially reduced and indeed close to zero, barring a shock.

Interestingly, the Council’s doves would appear to have essentially resigned themselves to this circumstance. That the trade deal effectively anchors the improved growth outlook is a bit ironic, as no one—not even Lagarde herself—had previously waxed enthusiastic about it.

More generally, there was nothing visibly meant for anyone on the Council still nursing dreams of another rate cut. Had they wanted to keep alive the idea of a December cut, the doves would have needed to get something out of Lagarde, but if there was pushback, it failed to leave a meaningful mark on her messaging.