Summary

• ‍‍Simply expect a 25bps cut at the December 2024 ECB Governing Council meeting. A bigger 50bps cut is a bridge too far. Core inflation of nearly three percent and services inflation of four percent prevent the ECB from acting more aggressively;‍
• Expect a dovish cut. The ECB will guide for policy to move towards a more neutral stance – nothing more. Gone are the days of ‘let-me-take-you-by-the-hand’ forward guidance from the – the Draghi era;‍
• I do not believe in fairytales, and you should therefore be skeptical of consensus calls for four consecutive rate cuts in 2025, starting in January. The result would be nirvana: inflation around two percent and an economy that would grow roughly in line with potential. Too good to be true in my book;
• ‍The risks are tilted towards the ECB doing less because of sticky inflation. If the ECB is going to ease more than expected, the trigger would be a US recession and a dovish Fed, not Trump 2.0 doing tariffs.