A hotly anticipated speech by a top European Central Bank official at the Jackson Hole annual central bankers’ summit in Wyoming on Saturday (24 August) failed to provide significant guidance on the ECB’s future rate path, analysts say.

Carsten Brzeski, global head of macro research at ING, described ECB chief economist Philip Lane’s speech as “well balanced,” highlighting both the dangers of prematurely cutting rates and maintaining unnecessarily tight monetary policy.

“[There was] no guidance or pre-commitment, and if anything [the speech was] a bit more hawkish,” Brzeski told Euractiv on Monday.

Lane, who presents and proposes policy decisions to the ECB’s rate-setting Governing Council, warned conference attendees the bank’s goal of returning inflation to the 2% target “is not yet secure.”

However, he also stressed that keeping rates “too high for too long” could entrench below-target inflation and weak growth across the eurozone.

Lane’s comments came a day after another highly anticipated speech by US Federal Reserve Chair Jerome Powell, who said “the time has come” for the Fed to begin cutting rates.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said that the Fed’s increasing pre-commitment to rate cuts – triggered by weaker-than-expected US employment data released earlier this month – is unlikely to impact ECB policy moving forward.

“The ECB has always been expected to cut in September and now the Fed is expected to cut as well. So, in a way, it is the Fed joining the ECB, not the other way around,” Vistesen told Euractiv.

Markets currently expect the ECB to cut rates between two and three times this year, with the first cut coming next month.

The ECB was one of the first major central banks to cut rates this year, reducing its key interest rate from a record high of 4% to its current level of 3.75% in June.

Analysts polled by Bloomberg expect August’s headline inflation rate – preliminary estimates for which will be released on Friday (30 August) – to drop to 2.2%, down from 2.6% last month and well below October 2022’s peak of 10.6%.

Ambiguous wage data?

Expectations of a rate cut next month were bolstered by last week’s data showing that negotiated wage growth in the eurozone fell to 3.6% in the second quarter, down from 4.7% in the first quarter.

ECB policymakers have long warned that rising labour costs may put upward pressure on inflation while suggesting that slower wage growth is likely to accelerate the easing of monetary policy.

Expectations of looser policy were further corroborated by the release of the minutes of July’s ECB meeting last week, which described September as “a good time to re-evaluate the level of monetary policy restriction.”

“Of all the data [released last week], the most interesting one was definitely the big decline in negotiated wage growth,” Vistesen said.

“It was certainly [a] much bigger decline than we expected,” he added, and probably also larger “than markets in general had anticipated,” he said.

Brzeski, however, argued that some of the data released last week provides evidence that inflation is “stickier” than expected.

He cited increased selling price expectations in a closely-watched business survey and an uptick in underlying wage growth in Germany, Europe’s largest economy, which strips out base effects from one-off inflation compensation schemes.

“I think that the market is currently somewhat underestimating the upward pressure on inflation and what it will do to ECB decision-making,” Brzeski said.

“I still think [the ECB is] going to cut in September. My only point is [that] it is less clear cut than the markets are currently pricing in.”

Eurozone displaying “stagflationary flavour”

Brzeski also noted that the eurozone economy currently has something of a “stagflationary flavour”, with slightly above-target inflation and weak growth across much of the single currency area.

“The question for me now is: How will the ECB react to this more stagflationary trend?” he said.

Brzeski added that the ECB could either attempt to “squeeze out the last bit of inflation” or allow it to hover between 2-3% to avoid harming growth.

“It is hard to read […] where the ECB stands in this debate,” the analyst said.

Read more with Euractiv

Commission ‘very confident’ on China tariff case as experts warn it may have breached WTO rules

The European Commission defended the legality of its trade tariffs on China-made electric vehicles (EVs) on Thursday (22 August) as several legal experts said it might have flouted World Trade Organisation rules in its anti-dumping investigation.