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Navigating neutrality: ECB policy amid heightened uncertainty

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  • Weber, Michael

Abstract

This paper assesses the European Central Bank (ECB)'s monetary policy stance as of June 2025, analysing its evolving interest rate path, balance sheet developments, and communication strategy. It highlights the transition toward a neutral policy rate, ongoing quantitative tightening, persistent inflation dispersion, and increasing macroeconomic uncertainty. The analysis concludes that while inflation is converging toward target, elevated uncertainty, and divergence between interest rate policy and balance sheet reduction demand cautious calibration and transparent communication. This document was provided/prepared by the Economic Governance and EMU Scrutiny Unit at the request of the ECON Committee of the European Parliament.

Suggested Citation

  • Weber, Michael, 2025. "Navigating neutrality: ECB policy amid heightened uncertainty," SAFE White Paper Series 113, Leibniz Institute for Financial Research SAFE.
    • Handle: RePEc:zbw:safewh:319903
    as

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    References listed on IDEAS

    as
    1. Baptista, Pedro & Dossche, Maarten & Hannon, Andrew & Henricot, Dorian & Kouvavas, Omiros & Malacrino, Davide & Zimmermann, Larissa, 2025. "The transmission of monetary policy: from mortgage rates to consumption," Economic Bulletin Articles, European Central Bank, vol. 4.
    2. Saten Kumar & Yuriy Gorodnichenko & Olivier Coibion, 2023. "The Effect of Macroeconomic Uncertainty on Firm Decisions," Econometrica, Econometric Society, vol. 91(4), pages 1297-1332, July.
    3. Pei Kuang & Michael Weber & Shihan Xie, 2025. "Central Bank Communication with the Polarized Public," NBER Working Papers 33524, National Bureau of Economic Research, Inc.
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