By David Barwick and Marta Vilar – FRANKFURT (Econostream) – Recent conversations by Econostream with multiple European Central Bank policymakers point to one conclusion: any lingering expectations of a December rate cut would be unrealistic unless the policy environment changed significantly.

Though the meeting is nominally “open,” not even the officials we spoke to who wanted a December cut expected it. “If you ask me what the most likely decision is, I would say no cut,” said one Governing Council member who believed further easing then would make sense but said he would not fight for it.

As to why monetary authorities attached low probability to a December cut – October was universally viewed as essentially a non-event – this was expressed repeatedly with comments like these from three different officials:

  • “I’m rather confident that when December comes, we are unlikely to have a reason to cut.”
  • “More than one thing would need to change to support another rate cut, but between today and our December meeting, incoming information will probably just continue to confirm that we’re in a good place.”
  • “It would take something serious for a December cut.”

Still, policymakers explicitly acknowledged that almost two months remained until 18 December and that new data were coming that at least theoretically could bring a material turn in either the outlook or risk dynamics.

Moreover, perhaps paradoxically, while everyone stressed that the ECB remains in a “good place,” none envisioned that condition as remotely permanent. “A good place is never fixed,” said one. “The current good place is simply not consistent with the volatility of our external environment, so I don’t see it lasting,” said another.

Again, this was not intended to mean that policy was likely to change soon, only that no one views the current calm as durable.

The recognition that the current stance cannot last indefinitely coexists uneasily with policymakers’ near-unanimous expectation that no further easing is imminent — an apparent contradiction that highlights how narrow the remaining window for another cut has become.

That narrowing window was on the minds of several officials. “If I wanted a cut, I would try to get it as soon as reasonably possible,” one person explained. “And the only time it would be is December.”

“If the next move is going to be a cut, then it’s going to happen relatively quickly,” said another. “If there is no cut in December, then the odds that the next move will be a cut start to sink.”

Still, a colleague of theirs – the other of two we spoke to who wanted more easing – felt another 25bp cut would come but was less inclined to attach a date to it, suggesting that the outlook might only weaken sufficiently next year.

Most policymakers were reluctant to say anything about next year, given still-high prevailing uncertainty.

Officials were split on whether the next move would be a cut or a hike, but on balance clearly felt that in the latter case, the move was likely to be distinctly more distant in time.

“I could also develop a scenario in which the next move would be a hike, but then that would be much farther out in time,” one person said. “If the next move is going to be a hike, the developments likely to lead to this will need some time to build up.”

“If I had to put money on it, then I would say that we have reached the end of the easing cycle,” said another. “The next rate move may even be more likely to be a hike, but obviously not in the near future.”

That President Christine Lagarde would declare the ECB at the terminal rate anytime soon appeared highly unlikely, given the uncertainty of Council members as to whether this was already so. One person said that Lagarde had been “cautioned not to indicate that the terminal rate has been reached.”

There was broad agreement that a 25bp cut would change “little,” in the words of one Council member who said that even so, as of this moment, “no one thinks we should do more than another 25bp.”

And yet, another person who similarly said that “one cut does nothing” emphasized that if the ECB did cut, then it should also “at least create the impression that there may be more to come in March and June.”

However, he conceded, this could effectively raise the bar for any additional rate cut, given reluctance to seem to be opening the door to a whole new series of downward steps.

A near-universal refrain was “judgment over models.” While one insider said that the macroeconomic projections were an important guide, “they don’t determine anything; ultimately, it comes down to judgment.”

Another observed that “you can’t really put too much weight on projections that are two or three years out.” In this context, several officials pointed to ETS2 as a source of deep uncertainty in those forecasts.

“People are still very unsure — will it come, when, what will be the exact consequences?” said one.

Another Council member – who complained that elevating the role of “judgment” was tantamount to having personal projections – suggested that base effects from ETS2 would already lead to undershooting in 2028.

In this regard, it was apparent that thresholds varied for what sort of inflation projection would justify further easing.

For some, a 2028 inflation projection of 1.9% would not warrant a reaction, but 1.8% or especially lower might. “If we don’t react to forecasts, there is no point in having them,” one argued, while another cautioned that “1.8% or 1.9% projections are no reason to act, but lower could be.”

A few insiders reflected on Chief Economist Philip Lane’s recent tone. Most saw him as slightly more inclined toward looser policy lately, but “not making a strong case” for additional cuts — rather “laying out the arguments” without pushing them.

Insiders rejected the contention that the divergence of tone between Lane and President Christine Lagarde pointed to any serious difference of opinion.

Exchange rate developments emerged as a point of divergence among policymakers, though it seemed that unless euro movements become both large and persistent, they remain a monitoring issue rather than a policy driver.

One insider described euro strength as a downside inflation risk that had emerged, while others treated it as little more than background noise. “The exchange rate isn’t a concern unless movements start to look more structural than cyclical,” said one. Another was even more dismissive: “A slow weakening of the dollar is no basis for a cut.”

At the same time, Banque de France Governor François Villeroy de Galhau was described by one of his peers as relatively concerned about the euro, a nuance that underscores how differently Council members weigh currency effects.

Taken together, the different perspectives depict a Council in wait-and-see mode, uneasy with forward commitments and united mainly by the desire to preserve flexibility. The “good place” language endures because it allows the ECB to sound satisfied without closing options.

The majority of insiders see the bar for December action as very high. Absent a clear reason to move, the earliest reconsideration of stance would likely occur in the first half of next year, but the appetite to do anything then may be even weaker.

The division over the euro fits the broader pattern: watchful but not alarmed, reflecting the ECB’s conviction that exchange rate effects enter the outlook through the projections, not the press conference.

One policymaker captured the essence neatly: “The question is not how long to wait for a cut, but rather if and when the data warrant a cut.” That moment, all agree, has not yet arrived. For now, the ECB will stay in its “good place,” watch the data unfold, and let any residual hopes for December wither on their own.