The recent remarks by ECB Executive Board member Cipollone essentially served as a buffer for the market: don’t rush to draw conclusions; the matter of rate cuts isn’t settled yet. What happens next? It all depends on the data and how risks evolve.

Let’s start with inflation. On the surface, it’s cooling off pretty quickly, but there’s a lot of internal debate. Some are worried about surging energy prices or potential tariff issues in the US that could send prices soaring again—under those circumstances, would you really dare to cut rates aggressively? But others are more concerned about the opposite: with such a sluggish economy, if inflation drops below the 2% target, not cutting rates might just stall the economy completely.

Now, looking at growth data. The eurozone economy has been nearly stagnant for two years, credit conditions are tight, companies are hesitant to invest, and consumers aren’t spending. Cipollone has repeatedly emphasized one point—wages need to rise for the recovery to have a solid foundation. But if wage growth disappoints and external demand keeps weakening, not cutting rates simply won’t hold up.

There’s also a technical detail here: balance sheet reduction. Cipollone made it clear that reducing the balance sheet will push up the yield curve and tighten bank lending, which is already cooling the economy. So even if rates are actually cut, the liquidity boost will be partially offset by the balance sheet reduction—it won’t be as strong.

For markets, these comments carry an implied message—the ECB won’t stick rigidly to one direction and will pivot as soon as the data changes. Investors now need to closely watch a few key indicators: inflation trends, economic growth rates, wage changes, and the pace of balance sheet reduction. If future data shows the economy can’t hold up, or inflation really starts to fall, the likelihood of rate cuts coming back on the agenda increases; conversely, if inflation rebounds or financial conditions suddenly loosen too much, policy could tighten immediately. In short, there’s still a long way to go—don’t rush to pick a side, staying on the sidelines might be the safest move for now.