"Top leadership of the European Central Bank undergoes major changes, will the path of interest rate cuts change?"

Europe's central bank is about to enter a new unpredictable phase, with 7 of its 26 rate setters set to end their terms in December, marking the largest personnel change since 2019. Among those departing members are the longest-serving Dutch central bank governor Klaas Knot, as well as several former finance ministers who have experienced the European debt crisis. As budget pressures increase and the uncertainty of the US-led trade war grows, their expertise may be missed by the markets. After experiencing the most serious inflation in the history of the Eurozone, even some successful re-elected members like Martins Kazaks of Latvia face tough tests. Kazaks received approval for a second five-year term on Thursday, after being in uncertainty since the end of his first term in December last year. While the European Central Bank is unlikely to undergo a fundamental shift, ECB observers will face a more challenging task as the balance between hawks and doves may change. This is far from an ideal moment, as US President Trump may impose tariffs on the G20 trade group, which could further weaken already weak economic growth expectations. It is believed that consumer prices will fall to the target level of 2% in the coming months, and plans to continue easing monetary policy are in place, with the deposit rate having already dropped from 4% in mid-2024 to 2.75%. However, the measures to be taken are still unclear, and the entry of new members may make the path and objectives more difficult to discern. Despite the personnel changes, continuity at the ECB is assured as any changes will not affect the powerful Executive Board. The ongoing debate about the so-called neutral rate, which neither restricts nor stimulates economic growth, is intensifying, with differing views on whether it should be below this level. The eurozone's latest data show that GDP unexpectedly did not grow by the end of 2024, and inflation rose slightly in January, taking analysts by surprise. Analysts believe that despite personnel changes, the downward trajectory of borrowing costs is clear. Christine Lagarde, President of the European Central Bank, recently emphasized the importance of taking action without political interference. She stated, "Central banks must have independence in order to fully carry out their responsibility for price stability." While the ECB is expected to respond to this year's personnel changes with a steady hand, market attention will remain focused on data rather than personnel when adjusting rate bets. However, this reshuffle may give a foretaste of more significant upheavals in 2026 and 2027, as this period will not only see the end of Lagarde's term but also the end of the terms of Vice President Luis de Guindos, Chief Economist Philip Lane, and Executive Board member Isabel Schnabel.