ECB Governing Council member Pierre Wunsch has indicated that the first 50bps rate cut in the upcoming easing cycle is “close to a no brainer”. However, he emphasized that any policy easing should proceed “gradually and not too quickly.”
Wunsch advised against committing to a second rate cut in July after the first in June, explaining that consecutive cuts could signal a series of rate reductions, which might heighten market expectations prematurely. He stressed the need for caution due to the uncertainty surrounding the future path of interest rates.
Wunsch also commented on the potential impact of Fed’s actions on ECB’s policy decisions. He noted that a delay in rate cuts by Fed could slow the pace of ECB rate reductions. However, he reassured that this would not derail the Eurozone’s disinflation.
“Higher U.S. interest rates could lead to a strong dollar and thus to imported inflation, i.e., higher prices here,” Wunsch explained. “That might lead to a slower pace at which we cut rates. However, it is unlikely that it will take us off the inflation path towards 2%.”
