Inflation Near Target, Central Bank Remains Cautious
The latest data from the Eurozone shows that the inflation rate in August remained around 2% for the third consecutive month, aligning closely with the European Central Bank's mid-term target. Facing this scenario, the central bank decided to keep interest rates unchanged after its September meeting. President Lagarde stated that the Eurozone economy remains within a tolerable range, with no immediate policy pressure.
Policy Stance Leaves Room for Flexibility
Vice President De Guindos emphasized that although the current interest rate levels are deemed appropriate, the central bank will retain all policy options to address future uncertainties. He noted that market predictions do not always accurately reflect the future, thus the central bank must maintain policy stability, which is why continued monitoring is necessary.
Increased Differences Among Officials
There are still differing opinions within the European Central Bank regarding the next steps. Some officials advocate keeping interest rates unchanged to avoid excessive policy fluctuations; however, there are also voices warning that further easing might be possible if the economy slows down or fiscal risks increase. Governor of the Bank of France, Villeroy, explicitly stated that the possibility of rate cuts should not be entirely ruled out. Meanwhile, Germany emphasizes that rate cuts could affect medium-term price stability.
Moderating Wage and Price Trends
Data released by the central bank indicates that the wage growth, which has driven inflation in recent years, is slowing down, with salary increases expected to remain below 2% until 2026. This suggests that future price pressures may gradually dissipate. Analysts believe that if wage growth stabilizes, the long-term inflation risk in the Eurozone will tend to ease, providing space for the central bank to maintain the status quo.
Contrast with U.S. Easing Policies
In stark contrast to the European Central Bank's inaction, the Federal Reserve has already restarted the rate-cutting cycle in September, signaling further easing. Goldman Sachs predicts that the Federal Reserve could cut rates three times this year, eventually down to the 3.0%-3.25% range. The policy divergence between Europe and the United States keeps the market's focus on the euro's trajectory. Some investors believe that if the Federal Reserve continues to ease while the European Central Bank remains unchanged, the euro may gain some support.
Dual Test of Labor Market and Inflation
The latest U.S. employment data reflects a simultaneous decline in supply and demand, with initial jobless claims decreasing but the risk of long-term unemployment rising. This situation makes the Federal Reserve's rate cuts more rational. Meanwhile, in the Eurozone, although inflation is near the target, economic growth remains challenging. If exports are weak or fiscal stability falters in the future, the central bank may have to re-evaluate its policy stance.
Market Focus on Future Meetings
The European Central Bank's wait-and-see strategy temporarily alleviated market uncertainty but also raised questions: if inflation further declines or fiscal risks escalate, can the central bank continue to maintain the status quo? The market currently widely believes that the European Central Bank will not take significant action this year, but the policy path for 2025 remains uncertain.
Conclusion
With inflation in the Eurozone nearing the target, the central bank has opted to wait and see for now. However, whether this "patience" can be sustained depends on external conditions and internal economic performance. As the Federal Reserve pursues easing policies and the global economy slows, the European Central Bank's next steps will become the focus of global investors.
