European Central Bank policymaker Klaas Knot signaled support for market expectations of rate cuts at the ECB’s January 30 and March 6 meetings, citing improving economic data. However, he cautioned against committing to further reductions, given uncertainties tied to global economic trends and potential U.S. trade policies under President Donald Trump.
"The data is encouraging and suggests we will return to our inflation target this year, with hopes of economic recovery," Knot said. A traditionally hawkish voice, he acknowledged medium- to long-term risks, including the impacts of Trump's trade agenda on global inflation and growth.
Markets expect four additional cuts in 2025, potentially lowering the deposit rate to 2%, near the neutral range that neither stimulates nor restricts the economy. While some ECB officials have floated dipping below neutral, Knot expressed skepticism.
"If recovery proceeds and we approach the target mid-year, further stimulus may not be necessary. Let the data guide our decisions," he stated, emphasizing a measured approach to monetary policy.