Consensus - incremental change in rhetoric but Lagarde doesn't go as far as the dovish market pricing (which the ECB already sees as excessive).
She will move away from "Higher for Longer", and closer to Schnabel's recent comments (terminal reached, potential for cuts in the middle of next year). Discussion of cuts at this stage is premature, ECB to remain focused on bringing inflation back to target and not rush to premature conclusions based on short term market developments. With March already 60-40% in favour of a cut, is the bar too high for a dovish surprise? Even if Lagarde was to endorse some cuts next year, could she really add substantially to March pricing?
Conversely, why should she wait to indicate cuts are coming, the economy has slowed sufficiently in key states, German fiscal situation is mirky, the market has priced for 5 cuts, why argue? Is it credible to continue along a "higher for longer" path, is it good risk management in the face of aggressive mkt pricing to wait to indicate cuts are coming with inflation potentially sub 2% before the end of the school summer holidays.
How have the ECB guided us towards tomorrow's meeting, what have they said?
Lagarde - "weakening of inflationary pressures to continue, even though headline inflation may rise again slightly in the coming months, mainly owning to some base effects"
Lagarde - "We need to be attentive to the different forces affecting inflation: the unwinding of past energy shocks, the strength of monetary policy transmission, the dynamics of wages and the evolution of inflation expectations."
Schnabel - no more hikes, inflation developments have been encouraging, opened the door to cuts by mid 2024.
Kazak - "science fiction" to consider cuts
Villeroy - cuts "may arise in 2024 but not now"
Lane - stay the course until we see wage data early next year
Wunsch - "Is it a problem if everybody believes we're going to cut? Then we have a less restrictive monetary policy and i'm not sure that then it's going to be restrictive enough. So it increases the risk that you have to correct in the other direction."
Is inflation coming back to target?
The market believes so, 2year inflation swaps are fixing around 1.8% and from next summer, headline inflation could already be back sub 2%.