By Balazs Koranyi

JACKSON HOLE, Wyoming (Reuters) – A growing number of European Central Bank policymakers are aligning for an interest rate cut in September, barring major data surprises. Conversations with seven sources indicate that financial markets expect a cut, although policymakers have been cautious in their communications after previous criticisms.

Recent data on growth, wages, and prices has influenced discussions, with many policymakers seeing conditions for a cut as being met. The sources mentioned a decline in price pressures, slower economic growth, and signals from the U.S. Federal Reserve as supportive reasons for a move on September 12.

Latvian policymaker Martins Kazaks stated they are where they want to be regarding rate cuts. His June projections allow for two more cuts this year, and he sees no reason to deviate. Other sources noted that informal conversations show broad support for the cut, even as they wait for more data.

The ECB typically makes decisions through consensus rather than formal votes, suggesting that alignment around a September cut is growing. ECB President Christine Lagarde’s support will be crucial, though she hasn’t made public comments on the matter recently.

OCTOBER EXPECTATIONS

Sources acknowledged potential challenges in communicating the decision since a cut could lead to raised expectations for more cuts in October. Markets currently predict a better than 90% chance of a September cut and expect at least another reduction later in the year.

One source expressed concern that easing expectations might lead to unrealistic market betting. The consensus remains that inflation must return to the ECB’s 2% target, with projections suggesting this may happen in late 2025, as further delays could undermine credibility.

As growth remains weak, especially in Germany, the eurozone’s largest economy, many policymakers emphasize the need for careful management of monetary policy.

Conclusion: Policymakers agree that timely action is critical to restoring inflation targets while fostering necessary economic growth.