The president of the European Central Bank gave an interview in Washington, between the meetings of the International Monetary Fund and the World Bank, and took the opportunity to leave a message about the future of interest rates in the euro zone. “The direction of travel is clear to me,” he told Bloomberganticipating further rate cuts in the coming months. “What we have done since June, I believe, is the sensible approach, and one that should continue, with the element of caution present,” highlights the president of the central bank.
However, although Lagarde is clear that interest rates must continue to fall in the coming months, for her it is equally important to highlight that the pace at which the cut will occur is not at all defined. “The direction is clear, but the pace of declines has yet to be determined”remember. Everything will depend on what the macroeconomic data that will be published in the coming months indicate. This, in fact, is what Lagarde refers to when she insists on the ECB’s “data dependency.”
And the macroeconomic scenario still does not allow the central bank to claim victory in its fight against inflation. Lagarde insists, as she did in the October meeting, that “at some point in 2025 the inflation target will be reached”, but points out that “it is still too early to know when this will happen.” The problem is that “inflation in the services sector has not slowed down too much,” and it is the component that remains to fit into the central bank’s puzzle in order to confirm that the battle against inflation has been definitively won.
“We are confident that in 2025 we will achieve our goal in a sustainable way, but we have to be very attentive to everything. Energy prices at this moment are lower than they could be, and we have inflation of the services sector falling slightly, but not much. We are at 3.9%, according to the latest reading, and we are going to have to pay attention to domestic inflation,” Lagarde recalled in Washington.
Lagarde’s comments fit with those made by some of her colleagues on the central bank’s Governing Council.such as François Villeroy de Galhau, Mario Centeno and even the hawk Robert Holzmann, who now all point to the need to continue lowering the price of money in the medium term.
What is not clear, and Lagarde has been in charge of highlighting it, is what pace they will continue. The president of the ECB herself assumes, and has warned, that in the coming months there will be a rebound in inflation rates, derived from the base effect of energy prices, but she hopes that it will be a temporary circumstance, and that in a short time the decreases in the price basket will be confirmed again.
A message for Donald Trump
Lagarde has not only spoken in the American capital about her monetary policy. The president of the ECB has not shied away from a thorny issue, such as the interference of politicians in the independence of an institution like the Federal Reserve, the central bank of the United States. When asked about this issue, Lagarde wanted to cover up her American counterpart, Jerome Powell, the president of the Fed, by pointing out about Trump that “You should come visit us in Frankfurt. “I have thousands of people who work very hard, economists, lawyers, computer scientists, and I can assure you that they work very hard every day, not just once a month,” said the Frenchwoman.
His message contrasts with the words of the Republican presidential candidate, who has described the task of establishing interest rates as “easy.” “The chairman of the Fed has the best government job. He shows up once a month at the office and says, ‘Let’s flip a coin,’ and then everyone treats you like you’re God,” Trump said.
It is not the first time that the Republican candidate is critical and tries to interfere in the monetary policy established by the Fed. He did so during his term as president, when he pressured Jerome Powell to lower interest rates and a controversy arose around to the attitude of the American president. Looking ahead to 2025, Trump has declared that he will not renew Powell in 2026.
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