The European Central Bank (ECB) says it sees no reason to lower interest rates again right now, even after inflation in the euro area finally hit the 2% target.
Governing Council member Olli Rehn made the comments while speaking in Jackson Hole, Wyoming, where top central bankers from around the world gathered for the Federal Reserve’s annual symposium, according to an interview from Bloomberg.
Rehn said the current inflation level is “in a good place” and warned against cutting rates for no clear reason. “Any insurance cut just for its own sake wouldn’t be necessary,” he said, adding that the ECB will stay “mindful of the risks.”
After slashing rates eight times over the last year, each time by 25 basis points, policymakers paused in their last meeting, holding the deposit rate at 2%. Since then, they’ve also hinted they may keep it unchanged at their next meeting in September.
Policymakers say economy can handle pause in cuts
Expectations for a final rate cut this year have now shifted toward December, with traders still unsure whether the ECB will even act again in 2025. Rehn pointed to a few reasons for the wait. “The economy has been showing resilience and inflation is for now within the target,” he said. That gives the ECB time to step back and “reflect on the next steps.”
But Rehn also made it clear the Governing Council is not locking itself into anything. “We will maintain full freedom of action at each meeting,” he said. Their next gathering is just over two weeks away and will include fresh quarterly economic forecasts. These updates will show if inflation is staying on track and how much the new trade framework with the U.S. is affecting eurozone growth.
While Rehn admitted “geopolitical tensions and the ongoing tariff war are having an impact,” he said the overall situation wasn’t as bad as feared. That echoes ECB President Christine Lagarde’s recent comments, which pointed out that the eurozone outlook is weaker than earlier forecasts but nowhere near the worst-case scenarios.
In fact, the second quarter saw the 20-nation bloc unexpectedly expand. Business confidence also got a boost after the U.S.-European tariff deal, with eurozone manufacturing returning to growth for the first time in months.
Inflation, meanwhile, stayed locked at 2% in both June and July, and is expected to hit the same mark in 2027, even though a temporary dip is expected next year. Still, Rehn cautioned that “there’s no reason for complacency.” He said the ECB must remain alert and “mindful of downside risks.”
Nagel sees no reason for changes unless conditions worsen
Joachim Nagel, president of the Bundesbank and another member of the Governing Council, also pushed back against more cuts during his Bloomberg interview in Jackson Hole.
He said the eurozone is currently sitting in a “kind of equilibrium,” with both inflation and interest rates aligned at 2%. “I think the bar is high,” Nagel said. “So it needs a lot to convince me to change monetary policy.”
Even though Germany’s economy shrank more than expected in Q2, Nagel wasn’t concerned. He said 2025 might bring a third recession in three years, but he sees growth returning in 2026 as government spending increases.
Nagel also weighed in on political interference in monetary policy, pointing to pressure on Federal Reserve Chair Jerome Powell from President Donald Trump, who is now in his second term in office. “Independence is the DNA of good monetary policy,” Nagel said. “We have to fight for it.”
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