The upcoming ECB meeting is expected to be a lively one, as far as central bank gatherings go. There is a lot to discuss, and there seem to be quite a lot of differences between the monetary policy setting committee members. This could lead to some unexpected outcomes.

The near-unanimous consensus among traders and economists is that the ECB will keep rates unchanged. Pretty much as the shared central bank promised to do at the last meeting. Where differences arise is in what could be forecast for the coming months.

A New Kind of Difficulty

The ECB has insisted that rates will remain high for a long time, essentially trying to communicate that there won’t be any cuts for most of next year. But, that was based on projections that the inflation rate would remain above target until 2025. And, if the European economy had staged a rebound in the latter half of this year, that might still be the case.

But the preliminary reading of CPIs for November caught ECB officials by surprise, coming down more than expected. The headline at just 2.4% is not completely back to the target of 2.0%, but the target is an average with some fluctuations allowed. So, it’s not wildly off track. The core rate at 3.6% is still a problem, but they are both coming down substantially. With the economy expected to continue to underperform in the coming months, it’s not surprising that inflation would be lower as well.

So, When to Cut?

Late last month, the usual North-South divide was shattered by some comments by German representative Isabel Schnabel. Normally the North favors tighter policy to keep prices in line, while the South wants easing to help boost the economy. Germany is often seen as the leader of the North, but its economy has been underperforming and got the nickname “the sick man of Europe”.

Schnabel opened the possibility that conditions might be met for rates to be cut in the middle of next year. While that agreed with visions from other ECB members, such as France’s Francoise Villeroy, it was shocking that the erstwhile hawkish German would suggest such a thing. Meanwhile, some of the South, such as Croatia’s Boris Vujcic, keep insisting on the need to maintain rates high.

Does This Mean a Future Cut Will Be Announced?

Not so fast. The middle of next year is a long way away, and the ECB isn’t necessarily in a position where they would have to suggest something this far in advance. There are many ways to keep insisting that rates will remain high for a long time in order to keep pressure on inflation, but allow for the idea of rate easing in order to prop up the economy.

The lack of economic growth could return to being the ECB’s chief worry, as it spent decades fighting low inflation as a product of anemic growth in the shared economy. Thus, the economic projections for the next year could come into acute focus. If they show a downgrade in economic outlook, with softer inflation than currently expected, then the market could interpret it as a dovish shift. That could weaken the Euro. On the other hand, there is such a growing expectation that the ECB won’t be able to go through with the higher for longer as the economy sputters, that not revising the projections could be seen as hawkish.

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