ECB’s October Decision Will Showcase Increased Confidence in Inflation, According to Lagarde

FRANKFURT – The European Central Bank (ECB) is becoming more assured that inflation will decline to its 2% target, which will likely influence its upcoming policy decision in October, according to ECB President Christine Lagarde.

The ECB reduced interest rates from record highs in June and again in early September. However, Lagarde offered limited insight into the bank’s future moves at that time, leaving the markets in suspense.

Lagarde’s recent remarks will strengthen existing predictions of a further rate cut in October, amidst a rapidly worsening growth outlook and decreasing energy costs.

"The latest developments strengthen our confidence that inflation will return to target in a timely manner," Lagarde stated during a parliamentary hearing in Brussels. "We will take that into account in our next monetary policy meeting in October."

Evidence from national data suggests that inflation in the eurozone may have dipped below the ECB’s 2% target for the first time since mid-2021. This decline, coupled with weak growth indicators, has prompted speculation about a 25 basis point rate cut in October, with markets now estimating a 75% likelihood of such a move—up from just 25% early last week.

Lagarde did not shy away from acknowledging the recent decline in growth readings. "Looking ahead, the suppressed level of some survey indicators suggests that the recovery is facing headwinds," she remarked during a standard hearing of the Committee on Economic and Monetary Affairs.

Despite these challenges, Lagarde reiterated the bank’s confidence that the recovery would strengthen and that increasing real incomes should encourage greater household consumption. She also noted the resilience of the labor market, which has been a driver of some price pressures due to rapid wage growth, even as wage increases appear to be stabilizing and corporate profits are absorbing a portion of these pay raises.