The European Central Bank (ECB) has once again trimmed interest rates—its third cut in as many meetings—while giving markets a fresh dose of ambiguity. With inflation hovering near 2% and the economy languishing, the deposit rate was lowered by 0.25% to 3%, bringing the total easing since June to 100 basis points.
Nearly everyone expected this except one lone analyst in Bloomberg’s survey, perhaps an optimist clinging to a bygone era of central bank decisiveness. In a symbolic flourish, the ECB also erased its prior commitment to keeping monetary policy “sufficiently restrictive” for as long as necessary, causing the euro to dip below $1.05.
But don’t be fooled—beneath this façade of action lies a central bank grappling with a European economy stuck in neutral and facing an uncertain 2025. Political turbulence in Germany and France and the wildcard of Donald Trump’s return to the U.S. presidency loom large. The ECB’s message? Expect rate cuts to continue into mid-2025, albeit with no firm roadmap.

For all the hemming and hawing, the ECB’s challenge remains the same: stimulating an economy weighed down by structural issues while inflation lingers at 2.3%, perilously close to slipping below the target. ECB President Christine Lagarde struck a cautiously grim tone, acknowledging that risks to growth remain “tilted to the downside” and that trade tensions could further erode the eurozone’s sluggish recovery.
Projections paint a dismal picture. The ECB has revised its forecasts for economic growth and inflation in 2025, with GDP growth expected to limp forward at best. Inflation, meanwhile, might once again flirt with pre-pandemic lows, bringing back memories of an era when central bankers were more worried about prices stagnating than spiralling out of control.

Lagarde insists that the ECB’s decisions are data-driven, but the data seems to drive policymakers in different directions. Some, including Fabio Panetta of Italy and François Villeroy de Galhau of France, hint at further aggressive easing that could veer into expansionary territory. Others, like Isabelle Schnabel of the ECB’s executive board and Bundesbank President Joachim Nagel, are more cautious, warning against overstepping.
Lagarde herself remains ambiguous about what constitutes a “neutral” rate, conceding only that it might be “a bit higher than before.” This coyness does little to reassure markets that are already pricing in another 125 basis points in cuts by the end of next year, potentially pushing rates into outright stimulative territory.

The ECB is hardly alone in its rate-cutting spree. The Swiss National Bank surprised markets with a 50-basis-point cut this week, following similar moves by the Bank of Canada and a likely dovish turn by the U.S. Federal Reserve next week. Yet, Europe’s structural challenges—labour shortages, high energy costs, and sluggish productivity—raise questions about how effective monetary easing can be in addressing deeper economic malaise.
Lagarde acknowledged as much, admitting that many of the bloc’s issues are beyond the ECB’s control.

As investors weigh the ECB’s hesitations, the stakes couldn’t be higher. A weaker eurozone economy risks undermining global trade, especially if Trump’s return to the White House exacerbates transatlantic tensions. Meanwhile, the ECB’s cautious optimism about a potential recovery in 2025 feels like a leap of faith in an unpredictable environment.
The ECB’s shifting tone—less “restrictive” and more “let’s see what happens”—might placate markets in the short term. But without a clear path forward, Europe risks stumbling into 2025 with monetary policy caught between a half-hearted recovery and the spectre of deflation. If the ECB’s goal is to inspire confidence, it might want to reconsider the mixed signals.
After all, in a world of central banking, consistency is supposed to be key—unless, of course, you’re the ECB, where ambiguity seems to have become an art form.