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The European Central Bank (ECB) is expected to hold interest rates steady on Thursday, September 11th, marking a potential second consecutive pause.
The interest rate decision will be announced at 16:15 GMT+4, as markets are monitoring insights on future moves from the ECB.
After cutting rates aggressively since 2024, the ECB now sees inflation near its 2% target and expectations of strong growth, with reduced uncertainty from the US-EU trade deal. ECB President Christine Lagarde has adopted a hawkish stance, with policymakers stating that inflation is aligned with Europe’s needs.
Expectations from the ECB
The ECB is expected to leave rates steady at 2.15%, with inflation rising slightly higher than expected since the prior meeting but still remains near target. Growth for Q1 was double the ECB’s expectations, while a trade deal with the United States has reduced uncertainty. So, policymakers have little reason to either cut rates now or signal what’s next. ⁽¹⁾
With inflation sitting at 2.1% and growth steadying, the central bank might pause its rate cut cycle to assess its strategy on how rate cuts impacted the Eurozone economy. Markets expect interest rates to remain the same throughout the rest of 2025. ⁽²⁾
US-EU Trade Deal Possible Impact on Outlook
The European Union’s 15% tariff deal is close to the ECB’s baseline rate of 10% expectations, stated by Christine Lagarde. Economists warn that tariff impacts on the EU economy are still unknown.
Further escalations might bring more risk, as weaker growth from higher tariffs, a stronger euro and cheap Chinese imports could push inflation below 2026 and 2027 targets.
France’s Political Turmoil and Central Bank Independence
France’s political crisis adds another factor of uncertainty for the ECB, after losing the confidence vote on September 8th. If political pressure lingers, it could pressure European markets further, and focus might return to the ECB’s Transmission Protection Instrument.
This plan is used to support nations who face debt problems and will ensure that the monetary policy stance is transmitted smoothly across all euro area countries. ⁽³⁾
Christine Lagarde might be asked about France’s debt problems and high bond yields, which is unlikely to give a clear answer on the situation.
Moving on to another set of uncertainties, the US administration, who is attempting to remove Federal Reserve Chief Jerome Powell or Governor Lisa Cook. This would pose a very serious threat to the global economy, Lagarde says.
The Fed yielding to demands for lower rates could refuel inflation, and tighter financial conditions could bring more uncertainty on monetary policy over to the euro zone, policymakers and economists warn. ⁽⁴⁾
How the ECB would respond if President Trump took control of the Fed is a big question. A sharp US rate fall could weaken the dollar, strengthen the euro, and cool eurozone inflation further in 2026. Lagarde could repeat concerns about Fed independence, but it is still too early to tell. ⁽⁵⁾
Economic Forecasts and Interest Rate Outlook
The ECB’s updated economic forecasts remain in focus. Economists expect a few upgrades on growth and inflation. ECB economists remain committed with their forecasts on inflation dropping below 2% in 2026 but returns above it 2027, showing a small reason to modify monetary policy.
However, weaker growth or a stronger euro could lead to rate cuts. A stronger rebound from defence spending could also push inflation up. Economists have also warned against supply chain disruptions being a repeat the 2021-2022 inflation shock. ⁽⁶⁾
Several policymakers have not ruled out another rate cut. The ECB remains divided on inflation forecasts. Markets speculate a 70% chance of a rate cut next summer.
The economic outlook would need to be weak for the ECB to cut rates. Some say a rate hike might be possible due to Germany stimulating the economy, which could lead to higher inflation. A bigger growth hit from tariffs, bond stress, US rate cuts, or lower inflation could resume cuts. ⁽⁷⁾
President Lagarde will speak at a press conference at 16:45 GMT+4, reading the economic statement and providing insights on current and future data. The event could trigger heavy volatility in EUR pairs and EU stocks.
