Meeting of 29-30 October 2025
Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Florence on Wednesday and Thursday, 29-30 October 2025
27 November 2025
- Review of financial, economic and monetary developments and policy options
Financial market developments
Ms Schnabel started her presentation by noting that since the Governing Council’s previous monetary policy meeting on 10-11 September 2025, financial markets had once again shown resilience to shocks. The risk appetite of investors in the euro area stood close to its highest level since the onset of the global financial crisis, amid persistently low volatility across asset classes.
The prevailing positive risk sentiment had been underpinned by the macroeconomic outlook in both the euro area and the United States, with both economies continuing to show greater than expected resilience to the ongoing trade conflict and geopolitical headwinds. Market indicators of expectations for euro area growth continued to suggest a robust economic expansion. Growth expectations for 2025 had been revised up and stood well above their level prior to the initial announcement of higher US tariffs. Growth expectations for 2026 and 2027 were close to pre-tariff expectations and were near to the level of potential growth. Market indicators of medium-term inflation expectations were close to 2%. The one-year inflation-linked swap (ILS) rate two years ahead in the euro area had hovered around 1.85% since August, corresponding to around 1.95% when including tobacco, despite a decline in crude oil prices. US inflation compensation, as measured by the one-year ILS rate two years ahead, had fallen below 2.4%, down from 2.5% in late August. This had reinforced investor confidence that the US Federal Reserve System would continue to lower interest rates, which had been another key factor supporting global risk appetite.
The resilient macroeconomic outlook had strengthened the market view that the key ECB interest rates continued to be in a good place. According to the latest overnight index swap (OIS) forward curve, investors had almost fully priced out any further rate cut in 2025, but left the door open for another rate cut in 2026, assigning a 40% chance to one additional rate cut by the end of 2026. By contrast, the median participant in the October Survey of Monetary Analysts anticipated no further cuts in 2025 and saw the rate-cutting cycle as being concluded, in line with the latest Bloomberg and Reuters surveys. As incoming data had reduced uncertainty about the economic impact of US trade policies, uncertainty around the ECB’s policy rate path had also declined.
Buoyant risk sentiment, supported by the resilient macroeconomic backdrop and by optimism on the impact of artificial intelligence (AI), had been mirrored in equity markets. Euro area and US equity prices had continued to rise since the Governing Council’s previous monetary policy meeting, with only a brief dip in mid-October following renewed US-China trade tensions and concerns about some US regional banks. A decomposition of euro area stock market developments illustrated that the rally since the start of the year had been largely driven by upward revisions in earnings expectations,
