ECB meetings are rarely the most exciting. So, when all the indicators are "in the right place," they border on deadly boring. Unlike the Fed's monetary policy meetings, which are currently focusing the markets' attention, those of the European institution seem anecdotal. Unsurprisingly, the ECB therefore kept its three key interest rates unchanged, a decision taken unanimously. Nothing more can be expected from Christine Lagarde's speech either, which held no surprises at the end of the meeting. On the inflation front, the disinflation process is now complete and it is now "around the medium-term objective of 2%." Wage growth, which had caused concern for the institution for a while, has normalized, and the risks weighing on price dynamics now appear more external (exchange rates, trade tensions, etc.) than domestic. Inflation forecasts, slightly revised downward for 2027 to 1.8%, even suggest room for maneuver for possible additional rate cuts. As for growth, the risks are considered balanced. Here again, uncertainty stems mainly from international sources, while domestic dynamics remain resilient, driven by domestic demand, public investment, and household consumption. In short, everything seems under control for the members of the Governing Council, who are therefore opting for the status quo while remaining "data-dependent" and attentive to international risks. Fortunately, France is there to remind us that Europe is never completely a bed of roses. The downgrade of France's rating by Fitch is a half-surprise, as the agency is not known for being the most proactive of the three (along with S&P and Moody's). On the markets, the event went virtually unnoticed, widely anticipated, and already priced in—despite articles in the mainstream press seeking to explain the slightest variation in indexes and rates by this announcement. The fact remains that this decision illustrates the slow erosion of French fiscal credibility and a certain downgrading, and it seems unrealistic to hope for a real change of course before 2027.
While France is adding a little spice to the European calm, it is indeed across the Atlantic that the main issue is at stake. Consumer price increases accelerated, as expected, in August, bringing headline inflation to 2.9%, while core inflation remained stable year-on-year at 3.1%. While the effect of tariffs is naturally being felt, underlying inflation is not really weakening and remains well above the Fed's target. This is not enough, however, to call into question the (very) likely rate cut expected this week. For the time being, momentum is still following Jerome Powell's "ideal path," that of a soft landing for the US economy. Two risks remain, however. The first—which encourages us to maintain a cautious stance—would be a more pronounced than anticipated weakening of the labor market, forcing the Fed to lower its rates not out of comfort but out of necessity, in order to counter a real economic deterioration. The second, on the other hand, would be a resurgence of inflation fueled by too rapid monetary easing in a still resilient economy, which would force the Fed to reverse course sooner than expected.
