The European Central Bank (ECB) slashed rates by a quarter point yesterday—the first cut in five years. Some experts say it was a costly mistake.

“I don’t think they really need to be cutting—the data’s not really rolling over,” Rob Burrows, a portfolio manager at M&G Investments, told Bloomberg. “It does seem that they’ve almost boxed themselves into a bit of a corner.”

Dirk Schumacher, a former ECB official and current head of macro research at Natixis, agrees.

“They cornered themselves,” Schumacher told The Wall Street Journal, referring to the near-impossibility that the ECB would be able to shift course after prepping markets for a rate cut.

The ECB had been hinting at a race cut for at least three months before the decision. Now that it’s happened, policymakers don’t seem as confident as they were in April.

“This was a cautious cut,” said Samuel Zief, head of global FX strategy at J.P. Morgan Private Bank. There’s “no reason to expect significant reductions any time soon with growth actually picking up steam of late.”

Economists are concerned about the sudden re-acceleration of eurozone inflation, which has forced ECB officials to revise their forecasts and backtrack on rate-cut expectations.

ECB President Christine Lagarde said inflation will likely remain above the central bank’s 2% target “well into next year.”

Preaching “data dependence”

Like the U.S. Fed, Lagarde said the ECB will be “data-dependent” when it comes to adjusting interest rates.

However, data is painting a different picture of the economy than it did a few months ago. According to ECB board member Isabel Schnabel, the eurozone faces a more difficult “last mile” fight against inflation.

In an interview with Nikkei, Schabel said, “The path beyond June is much more uncertain. Recent data have confirmed that the last mile of disinflation is the most difficult.”

Eurozone consumer prices peaked at 10.6% in October 2022. After falling to 2.4% in April of this year, headline inflation crept up to 2.6% in May. One of the stickiest categories is services inflation—which jumped to 4.1% in May from 3.7% a month earlier.

Other economists believe the data-dependence narrative can only carry the ECB so far. The real question is whether the ECB can continue lowering rates if the Fed stands pat.

“The pace of rate cuts will be dependent on the U.S. and the Fed,” said Mohit Kumar, an economist at Jefferies. “In the event that the Fed doesn’t cut rates at all this year—not our base case - we could see only two cuts from the ECB this year.”