At the upcoming Thursday meeting, the European Central Bank (ECB) appears ready to cut interest rates once again. Will this mark the beginning of a series of consecutive rate cuts?

Current economic data indicate that the economic situation in the Eurozone is more severe than at the last interest rate meeting, increasing market bets on a faster rate cut by the ECB. The previous rate cut pace in June and September was on a quarterly basis.

Regarding the pace of rate cuts by the ECB, Mark Wall, Chief European Economist at Deutsche Bank, stated:

"If the ECB does not cut rates in October, the market would consider the ECB to be lagging behind the situation and potentially making a policy mistake."

Here are the five key questions the market is focusing on:

1. Will the ECB cut rates this week?

It is almost certain, with traders estimating a roughly 90% probability of a 25 basis point rate cut, a significant increase from as low as 20% at last month's ECB meeting.

The unexpected contraction of business activity in the Eurozone in September led to a surge in bets for an October rate cut, with some policymakers already indicating a rate cut in October. Even ECB President Christine Lagarde hinted at a rate cut, stating that confidence in declining inflation would be reflected in the central bank's decision.

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2. Does this mark the beginning of a series of consecutive rate cuts?

Yes, Wall Street economists believe so.Traders anticipate that there will be more than three rate cuts following the four meetings after October, but ECB policymakers have not quite reached that point yet. Finnish Central Bank Governor Olli Rehn, who holds a neutral stance, reiterated the message that the pace and magnitude of further rate cuts will be decided on a meeting-by-meeting basis.

However, Gilles Moec, Chief Economist at AXA, stated:

Lagarde may hint that change is on the horizon, and the December meeting could be the right time to truly alter the narrative for the future.

3. Is inflation no longer a concern for the ECB?

Traders think so. Inflation had soared to over 10% two years ago but fell below the ECB's 2% target in September this year.

Even the stubborn service inflation that the ECB was particularly worried about has slightly decreased. According to data from Nomura Securities, monthly seasonally adjusted data shows that service inflation has slowed to its lowest level since November 2023.

Derivatives used to hedge inflation risks, compiled by Danske Bank, indicate that inflation growth will remain below 2% from the first quarter of next year, much faster than the ECB's forecast in September. Even Schnabel, the hawk who has long struggled to control price growth, has abandoned his long-standing warnings.

However, service inflation is still at 4% and has not decreased this year. The overall decline in September was driven by energy prices, so the ECB has not yet declared complete victory.

4. Is growth now the ECB's main concern?

This is an increasingly growing concern, whether economic stagnation will keep it persistently below the target, which was the main challenge the ECB faced in the decade before the pandemic.So far, the ECB has been counting on growth in real incomes to boost consumption and growth, increasing from 0.8% this year to 1.3% next year. Some economists are concerned that this forecast is overly optimistic, as the German economy has contracted for the second consecutive year.

AXA's Moec stated that if the expected economic rebound does not materialize soon, there is a risk that inflation will fall below the ECB's target, and some policymakers are also worried about this.

5. Does geopolitical risk affect the ECB?

Yes.

Economists believe that since the beginning of October, as geopolitical conflicts have escalated, oil prices have risen by more than 9%, but are still more than $10 below this year's peak. Low inflation means that the ECB can tolerate any temporary energy-driven increases.

BNP Paribas Chief European Economist Paul Hollingsworth said:

The ECB's response has now shifted, focusing more on growth risks, and geopolitical risks will only exacerbate some of their concerns.

More importantly, Thursday is the ECB's last meeting before the November U.S. presidential election.

Economists worry that if Trump wins and fulfills his promise to impose a 10% tariff on imports from the eurozone, this will hit eurozone economic growth and increase the rationale for further rate cuts.