Authored by Ven Ram, Bloomberg cross-asset strategist,

Market pricing on the European Central Bank’s rate trajectory for the year is now a lot more realistic, but still has room to mellow.

After factoring in as many as three reductions just days ago (and almost seven cuts at the start of the year), traders are now pricing in some two-and-fractional cuts, but that is still work in progress.

The ECB’s Chief Economist, Philip Lane, spoke in Dublin yesterday stating that the full impact of their unprecedented monetary-tightening campaign is yet to be felt.

“While the impact of the tightening cycle on economic activity might have reached its maximum level at the turn of this year, model-based analysis suggests that the bulk of the impact on inflation is comparatively backloaded, with substantial pass-through still expected to transpire in the period ahead,” Lane said.

The first expected reduction in June is nearly done – signed and sealed, but just waiting to be delivered.

The interesting question, though, is what happens beyond.

Will the governing council go at alternate meetings, delivering a cumulative 75 basis points of cuts for the year?

Most policymakers are unwilling to even comment on the subsequent path given uncertainty over wage growth and factors like the fighting in the Middle East.

“In deciding on the appropriate policy rate path, we will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction, and we are not pre-committing to a particular rate path,” Lane said.

Or will they opt for just one more beyond June – especially in the event that the Federal Reserve is constrained from easing?

Should the Fed find itself unable to loosen policy, it would be tall order to expect the ECB to reduce three times this year.

The markets are now veering around to that view, but there is still a bit of a ground to cover.