Published by Global Banking & Finance Review®
Posted on August 28, 2025
3 min readLast updated: January 22, 2026
Add as preferred source on GoogleECB officials are split on inflation risks, debating potential rate cuts and economic resilience amid U.S. tariffs and global uncertainties.
FRANKFURT (Reuters) -European Central Bank policymakers were divided on whether inflation was more likely to come in higher or lower than expected when they met in July, ECB accounts showed on Thursday, in a foretaste of a debate set to come to a head in the coming months.
The ECB left its key rate at 2% at its July 23-24 meeting and it will probably do so again next month before discussions about further cuts likely resume in the autumn, especially if the economy weakens under U.S. tariffs, sources have told Reuters.
The accounts of the July meeting showed governors agreed on the value of waiting for a trade deal between the European Union and the United States but they were split on the balance of risks to inflation.
"Several members viewed inflation risks as tilted to the downside relative to the June staff projections, at least for the next two years," the ECB said.
They said U.S. tariffs appeared likely to be higher than the 10% incorporated in the ECB's projections while other countries may divert more of their exports to the euro area. Meanwhile, inflation expectations for next year were below 2% even with one more rate cut already priced in.
One policymaker explicitly said that one more cut would be justified at the July meeting "owing to increasing downside risks to output and inflation".
Yet "a few" of their colleagues took the opposite view, saying the economy was more resilient than expected, services inflation still high and tariffs may disrupt supply.
"Moreover, it was argued that the projections could be underestimating the inflationary effects of the global fiscal expansion," some members said, according to the ECB account.
Data since the July meeting confirmed the euro zone economy was holding up while inflation hovered at the ECB's 2% target.
Meanwhile tariffs imposed by U.S. President Donald Trump's administration on EU goods imports, at 15% for most goods, were close to the ECB's own expectations and averted the most pessimistic scenarios.
Already in July ECB policymakers were resigned to the idea that policy uncertainty "would remain a key feature of the global and euro area economic outlook for some time to come", but they disagreed on how big its impact would be on the economy.
They said the euro's appreciation, particularly against the dollar, since Trump first unveiled his tariff plans in April had "a structural dimension" and was "unlikely to reverse in the near term".
But some policymakers said the knock-on effect on prices should be small.
It was argued that the pass-through to consumer prices was likely to be limited as the dampening effect from lower import prices might be partly offset by stronger price pressures from rising domestic demand, the ECB said.
(Reporting By Francesco Canepa and Balazs Koranyi; Editing by Toby Chopra and Hugh Lawson)
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. Central banks attempt to limit inflation to keep the economy running smoothly.
Monetary policy refers to the actions taken by a country's central bank to control the money supply and interest rates to achieve macroeconomic goals such as controlling inflation and stabilizing currency.
The European Central Bank (ECB) is the central bank for the euro and administers monetary policy within the Eurozone, aiming to maintain price stability and oversee the banking system.
Economic resilience refers to the ability of an economy to recover from shocks or disruptions, such as financial crises or natural disasters, and to maintain stable growth.
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