ECB rates puzzle, Lagarde indicates the date of the first cut

The ECB rate cut dilemma continues, with Lagarde offering a hint as to when the reduction in the cost of money in the Eurozone can begin.
The tone of Eurotower officials remains cautiously optimistic and the governor does not go beyond a generic seasonal indication on the potential date expected by all markets, that of the first official cut in interest rates, today at the record level of 4.5%.
The ECB could start lowering its borrowing costs this summer, President Christine Lagarde said, stressing that any such move would still depend on the latest economic data.
The attitude remains cautious, but 2024 is expected to be the turning point for monetary policy in the Eurozone.
Markets, but also families and businesses, are waiting for lower rates to support growth that has been weak so far.
Some glimmers of optimism emerged in Lagarde's words.
read also Fear of rates is growing: new drops on the market? ECB rate cut, Lagarde indicates a probable date.
What to expect? In an interview with Bloomberg television in Davos, Lagarde was asked to comment on indications from members of the ECB's governing council that the cuts could come in the summer.
“I would say it's probable,” the governor responded, increasing bets on a lower cost of borrowing starting with the June 6 or July 18 meetings.
However, nothing is taken for granted and anticipating dates with certainty is absolutely forbidden: “I have to be cautious, because we are also saying that we depend on the data and that there is still a level of uncertainty and some indicators are not anchored at the level where we would like see them,” Lagarde then added.
In Frankfurt's sights are, for example, the upcoming results regarding this year's collective wage agreements which could give it a good idea of where household incomes and therefore inflation are going.
read also Inflation, good news from the ECB Lagarde did not comment on the market's bets for 6 rate cuts this year, but said that if investors misjudge future moves, this could be counterproductive for the fight against inflation .
The reference is to the markets' euphoria about imminent decreases in the cost of money.
The Fed has also cooled this expectation as far as the USA is concerned.
Inflation in the Eurozone, just published by Eurostat for the month of December, reported both a monthly and annual increase, confirming expectations of a rise in prices.
The levels are no longer alarming, with the monthly CPI at +0.2% and the yearly CPI at +2.9%.
However, lowering our guard would be a mistake.
The dangers are around the corner.
Lagarde said inflation was “on the right track” but it was too early to declare victory.
It cited energy prices and possible supply chain disruptions as key risk factors.
The ECB is also keeping a close eye on eurozone wage negotiations and company profit margins for their potential "severe impact" on the bank's battle against inflation, he added.
read also ECB economic bulletin, what news on inflation and GDP in Europe? ECB against the markets? Markets "are getting too far ahead" with rate cut expectations, Dutch central bank president Klaas Knot told CNBC on Wednesday.
“The problem for us is that this could ultimately become counterproductive.
We are optimistic that we have a credible prospect of inflation returning to 2% in 2025.
But a lot still needs to go right for that to happen,” said Knot, a member of the European Central Bank, speaking at the World Economic Forum in Davos.
“Underpinning that projection is an interest rate path, an assumed interest rate path, that contains significantly less easing than is currently embedded in market prices.
So this risks becoming self-defeating,” he commented, criticizing the market euphoria.
The ECB will stick to its plan to reduce inflation as it battles risks from labor market tension and geopolitical uncertainty in the Red Sea, Knot confirmed.
The official agreed with those who argue that further rate increases will not be necessary and added that the emergence of upside risks to inflation would rather prolong the period in which they will be kept higher.
“But this could imply that the first cut could come later than currently expected,” he warned those most optimistic about the imminent change in monetary policy.