FRANKFURT – Barring major shifts in EU and global economics and politics, it could be a long time before European Central Bank interest rates move lower again.
The ECB kept its key rates unchanged Thursday as inflation expectations were largely steady and the growth forecast for this year was raised from its June projection. More importantly, bank president Christine Lagarde told journalists assembled for the press conference after the rate decision: “The disinflationary process is over.”
This can be taken to mean that the bank believes inflation has largely bottomed out, which would preclude further rate cuts, thus ending the cycle of reductions that began in June of last year.
Of course, central banks rarely handcuff themselves by saying they are done doing anything, and the ECB is no exception: Lagarde continued to push this public lender’s plans to adjust policy as warranted, relying on the latest economic data, and making decisions on a meeting-by-meeting basis.
Washington spurs paradigm shifts
To say disinflation has ended marks a milestone in the ECB’s brief but storied history, but the event is unlikely to be celebrated due to current circumstances. While policymakers on the governing council have apparently tamed the post-pandemic surge in consumer price growth—a masterful feat—the global political landscape has careened into terra incognito, with Washington’s current over- and underactivity on the world stage upsetting the establishment like the Beatles did in the 1960s.
Now ECB officials face an array of new problems, many of which have been inflicted directly or indirectly by the current US administration. One of the first is tariffs. The EU accepted US import fees of 15% on most of its goods, something unthinkable a mere seven months ago.
But at least this has finally been dealt with, noted Lagarde, who said the compact between the trading bloc and the world’s largest economy helped balance the risks to growth in the Eurozone because it has eliminated trade uncertainty and retaliation from Brussels that could have hurt local producers. “It’s not to say risks have vanished,” she added, noting that challenges remain. One challenge she failed to address was how often US President Donald Trump changes his mind, which could end the deal and any or all others.
The changing US policy toward Ukraine has also shifted the ground beneath the feet of European leaders, who are scrambling to bolster local militaries on concerns that Washington could decide to sit out the next conflict in Europe. This added spending is also expected to support the Eurozone economy.
Thus, ECB staff have boosted their outlook for euro area growth this year to 1.2% from the last projection of a mere 0.9% in June. At the same time, the uptick in 2026 GDP is expected to slow to 1.0%, down at tenth from June. The bank’s forecast for 2027 was unchanged at 1.3%.
The September forecasts (blue) versus those from June. (Source: ECB)
Surrounded by uncertainty
The ECB’s latest inflation forecasts showed minor adjustments, with the rate for the current year now expected at 2.1%, a tenth above the June outlook and the bank’s medium-term target. Next year’s prediction was raised a tenth to 1.7%, with the value for 2027 lowered a tenth to 1.9%.
Consumer price growth is at the mercy of many factors, Lagarde warned, offering a laundry list of up- and downside risks. Prices could rise on a fragmentation of global supply chains increasing import prices and capacity constraints at home, on higher European spending for defence and infrastructure, and if climate issues and extreme weather events drive up food prices. Price growth could fall on a stronger euro, when lower exports of euro area goods due to tariffs combine with more imports from countries shipping less to the US, or if trade tensions boost volatility and risk aversion in financial markets to hurt domestic demand. One notices that virtually all factors on this list can be tied to the recent actions of the US government.
For European monetary policy, politics have clearly taken the lead and will likely continue to do so in the months ahead.
With that in mind, Nordea reiterated its position that the next ECB move will be up, but it won’t come until 2027, bringing its forecast in line with a growing number of private institutions, many of which foresee officials on hold until at least the end of 2026.
“The ECB expectedly left rates unchanged today, with the deposit rate stuck at 2%,” Nordea said in a note. “The opening paragraph (of the ECB rate decision) was shortened notably, now just stating ‘inflation is currently at around the 2% medium-term target and the governing council’s assessment of the inflation outlook is broadly unchanged’. This suggests the ECB is increasingly content with the current monetary policy setup, and the threshold for rate moves in the near future has risen further.”
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session_info.mean_opinion_score = data.mean_opinion_score;
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- Staff raises ’25 growth forecast, cuts ‘26’s
- Inflation outlook “broadly unchanged”
- Lagarde: risks to growth “more balanced”
By Eric Culp
European Editor, LiveSquawk News
@eculp.bsky.social
@EricCulpLS
11 September 2025 | 15:00 GMT
FRANKFURT – Barring major shifts in EU and global economics and politics, it could be a long time before European Central Bank interest rates move lower again.
The ECB kept its key rates unchanged Thursday as inflation expectations were largely steady and the growth forecast for this year was raised from its June projection. More importantly, bank president Christine Lagarde told journalists assembled for the press conference after the rate decision: “The disinflationary process is over.”
This can be taken to mean that the bank believes inflation has largely bottomed out, which would preclude further rate cuts, thus ending the cycle of reductions that began in June of last year.
Of course, central banks rarely handcuff themselves by saying they are done doing anything, and the ECB is no exception: Lagarde continued to push this public lender’s plans to adjust policy as warranted, relying on the latest economic data, and making decisions on a meeting-by-meeting basis.
Washington spurs paradigm shifts
To say disinflation has ended marks a milestone in the ECB’s brief but storied history, but the event is unlikely to be celebrated due to current circumstances. While policymakers on the governing council have apparently tamed the post-pandemic surge in consumer price growth—a masterful feat—the global political landscape has careened into terra incognito, with Washington’s current over- and underactivity on the world stage upsetting the establishment like the Beatles did in the 1960s.
Now ECB officials face an array of new problems, many of which have been inflicted directly or indirectly by the current US administration. One of the first is tariffs. The EU accepted US import fees of 15% on most of its goods, something unthinkable a mere seven months ago.
But at least this has finally been dealt with, noted Lagarde, who said the compact between the trading bloc and the world’s largest economy helped balance the risks to growth in the Eurozone because it has eliminated trade uncertainty and retaliation from Brussels that could have hurt local producers. “It’s not to say risks have vanished,” she added, noting that challenges remain. One challenge she failed to address was how often US President Donald Trump changes his mind, which could end the deal and any or all others.
The changing US policy toward Ukraine has also shifted the ground beneath the feet of European leaders, who are scrambling to bolster local militaries on concerns that Washington could decide to sit out the next conflict in Europe. This added spending is also expected to support the Eurozone economy.
Thus, ECB staff have boosted their outlook for euro area growth this year to 1.2% from the last projection of a mere 0.9% in June. At the same time, the uptick in 2026 GDP is expected to slow to 1.0%, down at tenth from June. The bank’s forecast for 2027 was unchanged at 1.3%.
Surrounded by uncertainty
The ECB’s latest inflation forecasts showed minor adjustments, with the rate for the current year now expected at 2.1%, a tenth above the June outlook and the bank’s medium-term target. Next year’s prediction was raised a tenth to 1.7%, with the value for 2027 lowered a tenth to 1.9%.
Consumer price growth is at the mercy of many factors, Lagarde warned, offering a laundry list of up- and downside risks. Prices could rise on a fragmentation of global supply chains increasing import prices and capacity constraints at home, on higher European spending for defence and infrastructure, and if climate issues and extreme weather events drive up food prices. Price growth could fall on a stronger euro, when lower exports of euro area goods due to tariffs combine with more imports from countries shipping less to the US, or if trade tensions boost volatility and risk aversion in financial markets to hurt domestic demand. One notices that virtually all factors on this list can be tied to the recent actions of the US government.
For European monetary policy, politics have clearly taken the lead and will likely continue to do so in the months ahead.
With that in mind, Nordea reiterated its position that the next ECB move will be up, but it won’t come until 2027, bringing its forecast in line with a growing number of private institutions, many of which foresee officials on hold until at least the end of 2026.
“The ECB expectedly left rates unchanged today, with the deposit rate stuck at 2%,” Nordea said in a note. “The opening paragraph (of the ECB rate decision) was shortened notably, now just stating ‘inflation is currently at around the 2% medium-term target and the governing council’s assessment of the inflation outlook is broadly unchanged’. This suggests the ECB is increasingly content with the current monetary policy setup, and the threshold for rate moves in the near future has risen further.”
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