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ECB Meeting Accounts - January 2025

• The ECB emphasised a cautious and data-dependent approach in the account of its January rate cut decision. Market expectations were noted to price in a slower rate-cutting cycle, with the end-2025 rate projected at 2.08%.
• While inflation continues to decline, services inflation remains elevated due to persistent wage growth. The ECB expects wage pressures to moderate, but upside risks, including geopolitical uncertainty and trade disruptions, could delay further easing.
• Some Governing Council members noted that rates are approaching neutral territory, suggesting limited room for additional cuts. The ECB will assess future moves each meeting, with flexibility to slow or accelerate easing.

EA Resilience Is Perfunctory Problem

• Crashing US surveys in 2025 have looked idiosyncratic, as spurious exaggeration of exceptionalism ends. The ESI corroborates the PMI’s resilience in the euro area.
• Price expectations have been trending further above long-run averages without a one-off shock, suggesting European policy is too loose for this stage of the economic cycle.
• EA unemployment remains lower than a year ago, inconsistent with tight monetary conditions. We still see the ECB’s last cut in June, much sooner than the market prices.

By Philip Rush