Speaking on Saturday, Dutch ECB Governing Council member Klass Knot acknowledged the market’s heightened expectations for ECB rate cuts, noting that this shift occurred after disappointing PMIs and consumption data.
Knot described these expectations as having increased “quite dramatically” but cautioned that the market may have been “a little bit over-enthusiastic.” He highlighted that “We will only know once we do our own calculations again in December.”
Knot outlined two contrasting scenarios regarding the ECB’s rate path. On one hand, if incoming data reveal a rapid pace of disinflation or signal a notable shortfall in economic recovery, ECB could accelerate policy easing. On the other, if inflation risks shift upwards or data show resilience in growth and inflation, a more gradual reduction of restrictive measures might be warranted.
Knot underscored the importance of retaining “full optionality,” a strategy designed to act as a hedge against unpredictable shifts in the economic outlook. He stressed that ECB’s meeting-by-meeting and data-dependent approach has been effective.
