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The Eurozone household savings rate was 15.1% of disposable income in Q3, down from the four-year high of 15.4% in Q2. The ECB still expects the savings rate to decline over time (thereby stimulating household consumption), but at a slower pace than previous quarters. Consumption growth remains a key tenet of the anticipated Eurozone recovery, so will be important to monitor in the coming months. Markets continue to price a high bar to an ECB rate change in either direction over the next year.

• The December projection write-up noted that while the savings rate is still seen declining through 2028, it is likely to remain elevated due to economic uncertainty and "potential Ricardian effects in countries with announced fiscal stimulus" (the latter being a new addition relative to the September report).
• Broadly speaking, Eurozone consumer balance sheets remain in good shape. Deleveraging since the pandemic has left household debt at a 22-year low. Meanwhile, the asset side of the balance sheet has been supported by strong equity performance. A solid proportion of household assets are also held as currency/deposits, somewhat insulating consumers from stock valuation-related risks.
• Across countries, the savings rate rose four tenths in Germany to 19.6% and 1.4pp in Italy to 14.1%. Savings fell three tenths in France to 18.4%. and a tenth in Spain to 12.0%. For more on the increase in the Italian savings rate, see here

St Louis's Musalem says at this morning's MNI event that the latest nonfarm payrolls report for December and other data suggest a "resilient" labor market that he expects to "stabilize around current levels".

• "What I see is a labor market that has been cooling in an orderly way over the past nine months or so, I see demand and supply factors that have been at play...what I took away from it is, the unemployment rate's right around the neutral rate of unemployment. I took that payrolls are growing right in the middle of the range that we estimate [St Louis Fed] to be the new break even rate, which we say somewhere between 30,000 to 80,000 persons per month. And in terms of compensation growth, it is robust compensation growth, but consistent with a very high labor productivity that we've had in the last few quarters... if you look at the employment components of a lot of the business surveys, they've been robust. If you look at unemployment claims, they've been stable or coming down as new claims. And if you look at layoff announcements, they have come back out again, at least in the last read. So all in all, I see labor market that has been resilient. I expect it to stabilize around current levels. And the last labor report in my read was, was a good one."
• He eyes solid growth in 2026: "I expect the economy to grow and operate at or above potential in the coming year, there are some very robust tailwinds. We have a positive fiscal impulse, we have the cumulative lag effects of the 175 basis points of monetary policy easing working through the economy, we have accommodative financial conditions. And so all these, I think, will lead to a robust economy this year. The economy was very robust last year, very resilient to a number of shocks, and so that tells me the labor market will be stabilizing, will be supported by those dynamics."

St Louis Fed President Musalem (non-2026 FOMC voter) appears encouraged by recent inflation developments but is nonetheless hesitant about making further rate cuts in the near-term. 

• He says at today's MNI event that he expects inflation to resume its convergence to the 2% target over the course of this year, and today's inflation data "was encouraging that respect" with the 3-month rate of inflation trending lower.
• He says that his "sense" is that "policy is right around neutral" and "well positioned right now, balancing both the expected path of the economy and the risk on both sides".
• Musalem says he sees "little reason for near-term further easing of policy".
• That said, "If the labor market risks were to rise more than I currently expect, or if the risk that expected inflation begins to undershoot 2% on a persistent basis increases, of course, at that point, it might be appropriate to reduce the policy rate further, but I would have to see those risks materialize."