European Central Bank President Christine Lagarde stated that the interest rate cut cycle is nearing its end and praised Jerome Powell

On Tuesday, at the European Central Bank's annual forum in Sintra, Portugal, ECB President Christine Lagarde's remarks were more cautious than those of other officials.

Previously released data showed that the eurozone's harmonized CPI rose 2% year-on-year in June, in line with the ECB's target. Lagarde emphasized that "the inflation target has been reached, but the job is not done," warning that future geopolitical tensions and global divisions will pose dual risks.

She stated that the interest rate cut cycle is nearing its end, but there will be no pre-set commitments; future interest rate paths will be determined incrementally based on data. She also downplayed the current discussion on the importance of "neutral interest rates," noting that discussing neutral rates now is somewhat unrealistic, as neutral rates are typically defined in a world without shocks and where the economy is fully balanced, and the eurozone's neutral rate may be higher than in the past.

Lagarde also praised Federal Reserve Chair Jerome Powell for his courage in facing criticism from the White House. She said that if she and other members of her group faced similar political attacks, they would do exactly the same as Powell. Speaking about the status of the dollar, she mentioned that 2025 could be a "critical year" for the dollar as a global reserve currency, noting that while there are already cracks, significant changes will be a long-term process.

Inflation has reached the target, but the task is not yet complete

ECB President Lagarde emphasized that the eurozone's harmonized CPI growth of 2% year-on-year in June, announced on Tuesday, confirms that inflation has reached the ECB's target, validating previous forecasts:

"I'm not saying the job is done, but the target has been reached."

Looking ahead, Lagarde warned that geopolitical situations and global division trends pose "dual risks."

Interest rate path: the interest rate cut cycle is nearing its end, and no pre-set commitments

Compared to other ECB members, Lagarde's remarks were more cautious. When asked about the future interest rate path, Lagarde maintained her consistent position— the ECB will continue to rely on data and decide policies incrementally at each meeting, without pre-committing to any specific direction.

However, she pointed out that the entire interest rate cut cycle is nearing its end. We will not commit to further rate cuts, but we will not rule out any possibilities.

This aligns with the financial market's views on whether there will be another rate cut in September, with the current market probability approaching 50%.

Lagarde also downplayed the importance of the current discussion on the eurozone's "neutral interest rate" level:

"The eurozone's neutral rate may be higher than before. Discussing neutral rates now is somewhat unrealistic, as neutral rates are typically defined in a world without shocks and where the economy is fully balanced. The world we are in now is not like that."

Praising Powell's courage in facing White House criticism

Lagarde praised Federal Reserve Chair Powell at the forum's welcome dinner, commending his courage in facing criticism from the White House.

Lagarde stated that if she and other members of her group faced similar political attacks, they would do exactly the same as Powell.

Dollar status: 2025 may be a critical year

Speaking about the status of the dollar, Lagarde mentioned that 2025 could become a "critical year" for the dollar's status as a global reserve currency:

"Clearly, some things have already broken. But big changes take a long time."

Against the backdrop of a weakening dollar, the European Central Bank sees an opportunity for the euro to play a larger international role and urges governments to finally push forward relevant reforms—such as developing deeper capital markets.

Lagarde stated that she would not comment on the euro-to-dollar exchange rate, despite the significant rise in the euro against the dollar. She added that this reflects market conditions and the state of the European economy, influenced both by the weakness of the dollar and the strengthening of the euro itself.

President Trump's erratic policies have undermined trust in the dollar, prompting investors to seek alternative options. Previously, Lagarde has repeatedly stated that this could become a global moment for the euro, aimed at enhancing its international status.

Digital Euro: Must Be Led by the Public Sector

Lagarde reiterated the importance of promoting the digital euro. She said that currency is a public good, and we are the servants responsible for safeguarding and protecting this public good.

She warned that "privatization of currency" in the digital age would hinder the implementation of monetary policy and weaken the sovereignty of national governments.

When asked, "What keeps her awake at night?" Lagarde replied:

"The truth."

She expressed concerns about artificial intelligence, fearing that information may be presented in a "distorted" manner and public opinion may be manipulated. This is crucial for the European Central Bank, as they need to understand what is actually happening in economic reality.

Challenges and Opportunities for Europe

Lagarde stated that Europe faces significant challenges—reduced protection from the U.S. and decreased cheap energy. However, she also indicated that this means new opportunities.

"I believe that in a few years, we will look back at 2025 and see it as an important turning point that changed our way of life, business models, and the development of Europe. I hope it will be a change for the better. It depends on whether politicians can achieve that."

Lagarde mentioned that she would not give any advice to her successor, as former President Mario Draghi once told her that the job would be "a piece of cake." However, the situation has been completely different since Lagarde took over in 2019, with inflation first impacted by the pandemic, then by the Russia-Ukraine conflict, and now possibly affected by Trump's tariffs