(Bloomberg) — So far, European Central Bank officials have largely managed to steer the euro zone economy toward 2% inflation with one voice. But as they get closer to their target, views on what to do when are about to diverge.

Points of friction were already evident last week in Washington, where policymakers gathered to discuss the state of the global economy and the challenges that could arise.

Opinions – shared in speeches and conversations – varied not only on the future course of interest rates. They also differ on how to communicate the ECB’s intentions, the risks to the inflation outlook and quantitative tightening.

This makes the almost seven weeks until the December Board of Governors meeting a ripe stage for potentially contentious debates. In the coming days, policymakers will receive inflation data for October and a first look at third-quarter economic performance, likely to confirm a recession in Germany.

While their reaction to these reports could offer additional insight into how they currently assess the health of the 20-country Eurozone, certainty about the outcome of their next move won’t be available for some time. , with the American presidential election on November 5. creating another element of unease.

Financial markets are pricing in around 35 basis points of easing in December, suggesting traders are almost evenly split between a steady quarter-point cut or a more aggressive half-point cut.

President Christine Lagarde was one of the first ECB officials to speak last week, preparing economists and investors for the great whirlwind of comments from her peers, who were in the US capital to attend the Fund’s annual meetings international monetary policy. Of the 26 ECB officials, 19 shared their thoughts.

Vice President Luis de Guindos and board member Isabel Schnabel are expected to add their voices to the mix in the coming days.

“All week there will be people saying: oh, it should be 50, it should be 25,” Lagarde said in an interview with Bloomberg TV. “No. Clear direction of travel, pace to be determined based on elements looking to the past and the future using the three criteria and using judgment.

While most officials reiterated that these criteria – the inflation outlook, the strength of underlying price pressures and policy transmission – would form the basis of their decision, some appear to have strong preferences.

Bundesbank President Joachim Nagel has warned against cutting borrowing costs too quickly. His Austrian colleague Robert Holzmann said a quarter-point increase was “likely” in December, and Lithuania’s Gediminas Simkus said that reading the data, “I don’t see any arguments for cuts of 50 basis points.

At the other end of the hawkish spectrum, Portuguese central bank president Mario Centeno warned against limiting the ECB’s options to measures of just a quarter point.

“For an economy that has spent 10 years with average inflation of 0.9%, for an economy that is not investing, for an economy supported by a labor market that is showing signs of weakness, we must consider the possibility of go further. steps,” he said.

Policymakers are aware that such an increased pace of easing would come at a cost, signaling a sense of concern on the part of the ECB about the economic outlook that may not be justified.

ECB chief economist Philip Lane assured anxious ears that disinflation in the 20-country euro zone was on track and its recovery was simply delayed.

However, not everyone fully agrees with his assessment. Some have argued that a risk significantly below the 2% inflation target is already a real risk. Others expressed concern about the ECB’s overly conciliatory tone after Lagarde said at the latest press conference that there were more downside risks to prices than upside threats – while the mutually agreed monetary policy statement always avoided giving a balance of risks.

Belgian Central Bank President Pierre Wunsch said he “would not over-dramatize” the recent fall in the inflation rate to 1.7%, the lowest level in more than three years.

“The risks to growth are clearly to the downside. But it is not so clear that the inflationary trajectory is going in the same direction,” said the new head of the Spanish central bank, José Luis Escriva.

Such disagreement will not only affect policymakers’ views on where rates should move, but also the words they use to describe their intentions. For the moment, the ECB says it will maintain a restrictive policy for as long as necessary.

These directions were already discussed at the last meeting and will probably be examined closely as early as December. While some argue that policy must continue to suppress demand in the face of lingering inflation risks and others are prepared to signal their willingness to support the economy, the outcome depends to a large extent on new staff projections. IMF in December, which include estimates for 2027 for the first time.

A so-called mechanical update to the September forecast at this month’s meeting suggested a sustainable return to the 2% inflation target no later than the second quarter of 2025.

The abandonment of restrictive guidance could be perceived by the markets as a signal of a faster reduction. Lagarde herself called the phrase a “kind of magical language” and said observers would pay close attention if and when she changed, even marginally.

The debate also hinges on how most policymakers view the neutral rate – an unobservable level that neither slows nor stimulates growth.

While some policymakers remain reluctant to discuss it publicly, others are more vocal. In Washington, Centeno said he saw the rate “at 2% or slightly below 2%,” while Olli Rehn cited a Bank of Finland study that puts it between 2.2% and 2%. .8%.

The wording discussion could also touch on the “meeting by meeting” approach, with some policymakers concerned that this could wrongly suggest that the ECB does not know where it is going, while others are still comfortable with the term. .

Quantitative tightening could also become a source of discord within the Governing Council. The ECB has withdrawn most maturing bonds gradually from its policy portfolios and is expected to stop any reinvestment this year.

If it sticks to these plans, the central bank could soon find itself in a situation where it eases financing conditions by lowering rates and at the same time tightens them by removing liquidity from the markets.

Proponents of keeping QT in the background – also to create buying space in potential future crises – argue that the effect of diminishing bond holdings on policy direction is minimal. Those who watch the bond market closely for pockets of stress insist that rate decisions must offset any tightening that occurs, no matter how large.

To some extent, it is easier to agree on how to communicate when the ECB has clear forward guidance, or no guidance at all. The next phase will be a return to what Frenchman François Villeroy de Galhau described as soft signaling – allowing more room to push and pull in opposite directions.

“We have returned to a ‘normal’ inflation regime, our reaction function should become more ‘forward-looking’, with greater confidence in forecasts and rely less on monthly flash data,” he said. declared in a speech in New York before the flood. remarks in Washington.

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