The European Central Bank is set to cut interest rates on Thursday for the first time since 2019, but what happens after that is a bigger mystery.

Eurozone inflation is close to the ECB's 2% target, but May's inflation data exceeded expectations and inflation in the dominant services sector remains high. At the same time, the region's economic recovery is faster than expected and the job market remains tight, casting uncertainty over the number of rate cuts the ECB will make this year.

“The rate cut itself is not big news. The question is: what happens in the future?” said Jens Eisenschmidt, chief European economist at Morgan Stanley and a former ECB employee.

Here are five key questions facing the market:

1. Will the ECB cut interest rates this week?

Quite possibly, since many policymakers have all but committed to a rate cut in June.

The ECB is expected to cut interest rates by 25 basis points, taking its deposit rate to 3.75% from a record high of 4% hit in September last year.

2. What will be the interest rate path after June?

This is full of uncertainty.

Markets currently expect the ECB to cut interest rates by less than 60 basis points this year, or two cuts, with a less than 50% chance of a third cut, a sharp drop from at least five cuts expected at the beginning of the year.

Many forecasters still expect the ECB to cut interest rates three times, in June, September and December, with those meetings to be followed by updated economic forecasts.

The ECB's hawkish camp is trying to cancel the planned July rate hike. Others, such as French central bank governor François Villeroy, do not want to close the door to rate hikes.

So don’t expect much guidance from ECB President Christine Lagarde on Thursday, with analysts expecting her to repeat the central bank’s “data dependent” mantra.

“I think they will have far less planning for their next moves than they did in June,” said Paul Hollingsworth, chief European economist at BNP Paribas.

3. How much trouble does accelerated wage growth bring to the ECB?

Economists believe the impact will not be significant.

Policymakers wanted more evidence of slowing wage growth before cutting rates, but data from May showed wage growth rebounded to 4.69% in the first quarter. But the data was distorted by Germany, where wage growth is still catching up with inflation.

The ECB was seen as signalling it was not worried. The central bank published a blog post the same day highlighting other wage indicators showing that pressures were easing. Even German central bank President Nagel, a hawkish voice, shrugged off the data.

However, services sector inflation, which reflects domestic demand, rebounded in May, while record low unemployment may also cast uncertainty over the extent of cooling in wages.

Morgan Stanley’s Eisenschmidt said the wage data “gives (policymakers) more reason to gradually lower interest rates as they have to wait for more confirmation that inflation will eventually reach 2%.”

4. What about the economic growth situation in the eurozone?

This doesn't seem to be a cause for concern.

The eurozone economy grew 0.3% in the first quarter, beating expectations for a 0.2% gain. Forward-looking business activity data also came in above expectations, suggesting a strong recovery.

Economists see the data as good news for the ECB. The pick-up in economic activity could help improve weak productivity growth, partly due to labor hoarding, boosting confidence that inflation is slowing. The growth data is not strong enough to raise concerns about renewed demand-driven inflation, they said.

“The latest economic data is very encouraging,” said Reinhard Cluse, chief European economist at UBS. “It refutes the view of those vocal doves who say the economy is in trouble and we have to cut rates quickly.”

5. What will the new ECB forecasts show?

Analysts expect the ECB to slightly raise its growth and inflation forecasts, but that should not affect its expectation that inflation will return to target by the end of 2025.

“The overall picture should remain consistent with March,” said Konstantin Veit, portfolio manager at PIMCO.