Pierro Seboloni, a member of the European Central Bank’s board, said on Wednesday that the European Central Bank is increasingly confident that inflation will fall to its target of 2% by mid-2025 with moderate wage growth, bolstering the case for interest rate cuts.
The European Central Bank hinted at the possibility of cutting interest rates in June based on further good news regarding wages and comments from Seboloni. In his first major speech since joining the board, Seboloni indicated that the process is moving in the right direction.
Seboloni stated: “Wage growth appears to be gradually moderating over the medium term towards levels consistent with our inflation target and productivity growth, in line with expectations. With our increasing confidence in inflation convergence towards our target in due time, this also strengthens the case for adjusting our interest rates.”
Investors now expect the European Central Bank to lower interest rates in June, but they are divided on whether two or three more moves will follow before the end of the year. The bank has placed significant emphasis on wage data in the first quarter, scheduled for release in late May, suggesting that the trajectory of rate cuts is unlikely to be clear for some time thereafter.
However, Seboloni warned against excessive focus on short-term wage developments, arguing that household profit recovery is necessary, and even after catching up, real wages will remain below levels justified by labor productivity growth since the pandemic.
He said: “Excessive focus on short-term wage developments may not fully account for the wage rebound that can – and should – occur for the current fragile recovery in the euro area to have a stronger footing,” adding that the state of economic uncertainty has diminished, making the European Central Bank more confident in its own forecasts, which indicate continued inflation slowdown while achieving the target next year.
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Shady Fouad is a technical analyst at LDN Company
Shady's strategic vision in the currency markets is reinforced by more than fifteen years of trading experience, which enables him to blend economic and technical analyzes with high efficiency, and find the best investment ideas for traders.
