Vasle: Market Expectations for Rate Cuts are Premature
In an interview with Reuters, Vasle expressed his belief that market expectations for rate cuts are premature. He clarified that this pertains not only to the timing of the cuts but also their overall magnitude. Vasle, known for his conservative stance within the ECB’s rate-setting Governing Council, stated, “The market’s pricing has reduced the level of restriction, and the current accommodation reflected in interest rates does not align with the appropriate stance needed to achieve the target inflation rate.”
Vasle also touched on the availability of new data, noting that substantial information on inflation, growth, fiscal policy, and the labor market will likely not be available until the months following the January meeting. He emphasized that it may even be as late as March or April before the ECB can collect enough data to make informed decisions.
Inflation Projections and Labor Market Dynamics
Regarding inflation, Vasle anticipates a temporary increase before it eventually drops to 2% by the second half of 2025. He expects inflation to rise again at the start of next year, comfortably hovering between 2.5% and 3% during the first half of the year.
When discussing the labor market, Vasle acknowledged that historical norms do not apply in the current economic climate. Despite the bloc’s proximity to recession, the labor market remains remarkably tight. Companies are retaining workers in anticipation of an economic rebound.
Vasle highlighted the uncertainty around wage dynamics, given the previous years of high inflation that eroded real incomes. He mentioned the upcoming first quarter as crucial for wage formation and emphasized the importance of monitoring whether workers will demand additional compensation or if firms will absorb some of the wage growth through higher profit margins.