ECB Insight: The Non-Event, or Patience as Policy

28 October 2025

By David Barwick – FRANKFURT (Econostream) – The European Central Bank’s policy meeting looks set to be a deliberate non-event designed to blend seamlessly into a series of non-events: rates on hold, no pre-commitment, and the same disciplined message that has dominated for months. Optionality to be preserved, not exercised.

Our latest conversations with Governing Council members leave little doubt: if another cut comes, it will be because something material changed, not because a few data points sagged. In the words of one insider, “It would take something serious for a December cut.”

That December is so unlikely supports the idea that the bar for any move at October’s non-projection meeting is unattainably high. Not even those who would like to ease are pinning any hopes to this Thursday.

As such, President Christine Lagarde will hew to the template: meeting-by-meeting, data-dependent, no rate path. The “good place” phrasing — and the adamant refusal to play probabilities — are bound to return. As she said two weeks ago when asked whether easing was at an end, “I would never say that because I think the job of a central banker is never done.”

Seen another way, that admits the theoretical possibility of another move, even if Thursday can still be reliably excluded. Chief Economist Philip Lane’s October 6 framework speech made clear that decisions are a balance of the baseline and the risk distribution, with two-sided scenarios and no pre-commitment. He explicitly linked small, state-dependent rate moves to risk management rather than to a deterministic path.

But the bar for December – one scarcely need speak of this week's meeting – is high for various reasons:

1. Baseline inertia: The September staff projections already have inflation near target in 2025, and although undershooting is expected in 2026, 2027 inflation is seen back at what Lagarde called a “big 1.9%.” That framing allows patience without signaling fresh easing, though of course the new 2028 projections have the potential to change some minds.
2. Judgment over models: Even if the 2028 projections appear to call the transitoriness of the undershooting into question, they may not change many minds. Judgment dominates model outputs at the margin (for some policymakers not just the margin); moreover, ETS2-related uncertainty in 2027 and energy “error-correction” make long-horizon projections inherently fragile, which will make authorities cautious. That argues against cutting on the basis of small projection tweaks (say, 1.8–1.9% in 2028), unless broader risks also swing. As Lagarde said last month, “We have indicated very clearly in our strategy that minimal deviations – if they remain minimal and not long-lasting – will not necessarily justify any particular movement.”
3. Signaling vs. substance: “Minimal” is naturally subject to interpretation, though would certainly fit 1.9% and probably 1.8%. In any case, magnitude must also be seen through the prism of duration. But more or less everyone agrees that a lone 25bp cut would by itself change little, meaning its chief value would be as a signal. The problem here is that if the ECB cuts and hints at more to come, it’s effectively opened a new mini-cycle — which raises the bar to act in the first place.

The center of gravity has thus edged toward patience. Banque de France’s François Villeroy de Galhau allowed that if the next move comes, a cut is likelier than a hike — but that is a conditional, not an intention, and one doubtless reflective of his well-known personal preference.

In an Econostream interview on the eve of the current quiet period, Latvia’s Mārtiņš Kazāks asked the right question: with most easing done and pass-through still working, why do a small cut that would scarcely budge the macro needle? Little wonder that after briefly sounding dovish a few months ago, Belgium’s Pierre Wunsch is now back to saying that the probability of another cut has been “receding.”

Meanwhile, exchange-rate chatter has grown, but for most the euro remains something to monitor, not to motivate action. Lane’s state-dependent take matters here: euro effects are larger if driven by external weakness (more disinflationary pass-through) than if linked to euro-area strength. The bar is persistence and magnitude, not noise.

Energy is where uncertainty bites. Lane set out the “error-correction” view: after the 2021-22 energy surge, multi-year mean reversion can still bear down on inflation — until ETS2’s one-off lift in 2027. That mix reinforces patience now and argues against reacting to month-to-month energy volatility unless it bleeds into underlying inflation and wages.

What would actually move the needle?

One candidate would be a genuine shock that hits growth and risk sentiment hard enough to tilt the risk distribution clearly to the downside (not just “softer data”). In this uncertain environment, such a development is all the harder to rule out.

Another possibility would be a projections break in December (including 2028) that drops medium-term inflation far enough below 2% to warrant insurance easing — again, surely not 1.9%, maybe not even 1.8%, but a cleaner miss, ideally with corroborating dynamics in wages and underlying inflation. Euro area wage growth, we note, is projected to ease to around 2.7% next year, modestly below the 3% rate the ECB regards as broadly consistent with price stability — a slowdown that also brings unit labor cost growth back toward its historical average.

And then there is transmission impairment — a clear tightening in financial conditions beyond what the baseline assumes, not explained by domestic demand strength. This may be an underestimated risk. One Council member who spoke very recently to Econostream warned of hidden market vulnerabilities and said that over a shorter time horizon he was in fact “more worried about that than about fiscal developments.”

Short of such an adverse turn of events, the Council can sit tight. As one policymaker we mentioned already last week put it, “The question is not how long to wait for a cut, but rather if and when the data warrant a cut.”

In our view, 2% is best thought of as the terminal rate, while keeping in mind that any terminal rate not defined in retrospect remains subject to change. In this highly uncertain world, the designation is thus a bit more tentative than it would have been at similar stages of past easing cycles, but it is by now evident that the Governing Council has no specific intention of cutting again.

In other words, there is no rate cut “in reserve” that the ECB is merely waiting for the right moment to deliver. If December passes without action, as we now expect, then absent new storm clouds on the horizon, the bias shifts toward a longer hold — with the sign of the next move genuinely two-sided but its timing asymmetrical: any hike would come “much farther out,” as another insider put it, though that remains conditional — including on the unknown unknowns.

Regardless, finding it hard to embrace the optimism that implicitly underpins a portion of policymakers’ conviction that they are in a good place, we do not dismiss the possibility of further easing as the next move. But it is not our base case, and if another rate cut comes, we think March is the earliest window, based on what is known today.

In short: for now, the ECB will keep its powder dry, keep its options open, and keep repeating what markets already know but sometimes resist: no pre-commitment, no promises — and no scissors in December unless Santa brings a real surprise.