ECB Insight: "Judgment Over Models" Meets the 2028 Projection Horizon

31 October 2025

By David Barwick – FRANKFURT (Econostream) – Following Thursday’s decision to leave interest rates alone, European Central Bank Governing Council policymakers wasted little time signaling that the December Eurosystem staff projections – the first to include 2028 inflation – should not be over-interpreted.

But their reasons for doing so largely reflect where they stand on the question of another cut, and the emerging caution may ultimately prove misplaced anyway.

Olli Rehn struck a procedural note, pointing in a statement to “considerable uncertainty about the inflation outlook” and arguing that this justified waiting for the December exercise before taking further action.

In his view, the new horizon promises to shed light on a murky outlook – not to complicate it – and his comment implied confidence that the projections will at least narrow the range of uncertainty that prevailed in October.

That he is still leaning in the direction of more easing came across in the juxtaposition of his admission that “data did not support a rate cut” with the consoling “it was reasonable to wait for new data” – he is clearly waiting for the outcome the dearth of new information denied him yesterday.

Others have been more eager to inoculate against the risk that the 2028 number might play into the hands of Rehn and the few still aligned with him. Austria’s Martin Kocher called the outer-year forecast “a projection that is far out in the future” and cautioned that “putting too much weight … on this single data point … would not be appropriate.”

Latvia’s Mārtiņš Kazāks struck a similar, albeit somewhat fence-straddling chord, describing the figure as “very important to look at” but not to be “overestimate[d]”, given a “very large margin of error.”

The rush to play down the lengthened horizon is in keeping with what numerous insiders told Econostream last week about a prevailing preference for “judgment over models.”

Council members on both sides of the policy divide accept that staff projections are an indispensable input, yet the idea of being bound by them was consistently less appealing to the hawks, evidently concerned about the possibility that a far-off data point might be read as implying the timing and direction of the next move.

That being the case, one can be reasonably certain that when Banque de France Governor François Villeroy de Galhau weighs in, as he inevitably will, it won’t be to dismiss the 2028 inflation projection à la Kocher and Kazāks.

Indeed, his plea today to be “guided by data and forecasts … in our upcoming meetings” can already be read as an endorsement of the 2028 projection – at least if it turns out to be convenient.

Still, the current wave of disclaimers may be overdone. Perhaps the chief source of outer-year uncertainty, ETS 2, was explicitly addressed by ECB President Christine Lagarde yesterday, when she said that any revision under discussion would amount only to “a slight smoothing in the implementation.”

That clarification reduces one of the biggest variables behind the 2028 number, suggesting that the coming projection could be cleaner – and less ambiguous – than many anticipate.

If so, December’s forecast round may end up testing the sincerity of the “judgment over models” mantra. Policymakers are already signaling that whatever the new horizon shows, it will not be decisive.

Yet should the numbers reinforce the current picture of inflation stabilizing near 2%, that would vindicate the models as much as the judgment — showing that, despite weeks of downplaying their relevance, the projections and policymakers’ instincts point to the same conclusion.