European Central Bank officials are preparing to cut interest rates again in June, warning that lasting damage to the economy will persist even if the Trump administration softens its approach to trade in the coming weeks.

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Following a week of intense meetings at the International Monetary Fund, most policymakers left Washington increasingly convinced that President Donald Trump’s unpredictability will continue to suppress investment, spending, and inflation across Europe.

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The case for a further quarter-point cut is also being reinforced by tighter financing conditions, a stronger euro, and falling energy prices. If confirmed, June would mark the ECB’s eighth consecutive rate cut, pushing the deposit rate—currently at 2.25%—closer to 1.5% by year-end, according to economists at Bank of America, Deutsche Bank, and Morgan Stanley.

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While some Governing Council members, including Klaas Knot and Martins Kazaks, have urged caution, others like Olli Rehn and Gediminas Simkus are signalling openness to deeper cuts if inflation continues to retreat.

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President Christine Lagarde maintained the ECB’s cautious official line, stressing that the bank must remain “extremely data dependent.” She warned that the size and distribution of economic shocks remain highly uncertain, making it unwise to pre-commit to any specific path for rates.

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Recent data has underscored concerns about the region’s slowing momentum. Eurozone growth is now expected at just 0.8% for 2025, down from 1% previously forecast, according to the IMF’s latest World Economic Outlook. Softer demand and sluggish confidence have been confirmed by surveys of purchasing managers across the bloc.

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While inflation is easing, policymakers remain divided over how aggressively to respond. The IMF believes a further 25-basis-point cut would be sufficient to return inflation to the 2% target without risking overheating. However, ECB officials will be closely watching fresh economic data and forecasts before taking bolder steps.

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Some policymakers, including France’s Francois Villeroy de Galhau and Slovakia’s Peter Kazimir, believe inflation risks are now firmly under control. Villeroy argued that tariffs would not trigger an inflationary spike, opening the door for “gradual” further easing.

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However, others remain wary. Latvia’s Martins Kazaks warned that while inflation has slowed, it is premature to move rates aggressively into stimulus territory. Knot, from the Netherlands, similarly pointed to long-term risks from disrupted trade flows and higher public spending on defence and infrastructure.

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New inflation and GDP data due this week will be critical. Analysts expect Eurostat to report 0.2% GDP growth in the first quarter, with inflation dropping to around 2.1% in April, just above the ECB’s target.

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Beyond the immediate outlook, policymakers are mindful that Trump’s 90-day negotiating window on trade will not expire until early July—adding further uncertainty to the summer forecast horizon.

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“This is a time for agile and active monetary policy,” said Finland’s Olli Rehn, calling for full flexibility on the size and speed of future rate moves.

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Despite the darker growth backdrop, some officials see silver linings. Croatia’s Boris Vujcic noted that bond yields have fallen and capital is still flowing into the eurozone, suggesting Europe is well positioned to weather further shocks.

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The ECB’s next move will be decided at its meeting on 5 June. Markets are now firmly expecting a cut—what remains unclear is how far and how fast the central bank will go.

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