Is a rate cut next week a done deal? Another European Central Bank official supports a rate cut

On the eve of the European Central Bank's monetary policy meeting next week, another key decision-maker has expressed support for interest rate cuts. According to The Wall Street Journal, Pierre Wunsch, the Governor of the National Bank of Belgium and a member of the European Central Bank's governing council, recently stated that if the Eurozone economy continues to weaken and inflation cools, the European Central Bank may have to lower its benchmark interest rate to stimulate the economy. Currently, the market expects the European Central Bank to cut interest rates again next week, lowering the key rate from 2.75% to 2.5%. This would be the sixth rate cut since June 2024, bringing the rate closer to the neutral rate range estimated by ECB economists (1.75% to 2.25%). Investors anticipate that the European Central Bank will continue to cut rates after next week, and Wunsch believes there is some reasonableness to the market's expectations, with rates potentially dropping to around 2%. Wunsch stated that it is currently unclear whether rates will still suppress economic activity to curb inflation after the rate cut next week. The key to future policy direction lies in whether inflation declines rapidly and economic weakness persists; the ECB may need to lower rates to stimulative levels rather than just maintaining a neutral or slightly tightening stance. Despite strong expectations for rate cuts, Wunsch also emphasized that policymakers must "keep an open mind on both sides of the equation," ready to respond to various "events," and may need to pause rate cuts if economic activity rebounds or inflation declines slower than expected. In addition to monetary policy, Wunsch also discussed the impact of geopolitical risks on the European economy. Wunsch believes that significantly increasing military spending to reduce Europe's dependence on the United States could revitalize European factories, which currently have excess capacity and insufficient demand. The decline in demand in industries such as automotive has left factories idle, and increasing investment in arms production may be a way out. Furthermore, Wunsch stated that if Europe suddenly spends a large amount of money without capacity, it could lead to inflation without an actual increase in output; therefore, converting some factories to defense production could help limit the potential inflation effects of rearmament