The chief economist of the European Central Bank (ECB), Irishman Philip Lane, commented in an interview with the French newspaper Les Echos that “monetary policy should not remain too restrictive for too long.” In any case, the entity does not commit in advance to a particular speed of adjustment, but rather repeats that, over time, rates will have to be reduced, but sends a message that insists on the need to make decisions “meeting by meeting.” “.
If the restrictive territory is not abandoned, “the economy will not grow enough and inflation, I believe, will fall below the objective,” he warned. The expert has stated that he expects a “rebalancing” in inflation in the coming months with a decrease in services. He is confident that bringing the figure back to the 2% target in a sustainable way “could effectively be covered next year.” In 2025, “in the absence of new shocks, this balance could be achieved in the sense that a restrictive policy will no longer be necessary,” he insisted.
At the moment, the market is discounting that the ECB could be somewhat more aggressive than expected a few weeks ago, even discounting that it could make a cut of 50 basis points at the next meeting planned for December 12.
Despite the message in favor of continuing to lower rates, in a subsequent speech in London, the central bank’s chief economist stated that it is necessary to remain cautious regarding the process of lowering rates, somewhat qualifying his message. previous statement, noting that “the ECB should “keep an open mind about the pace of rate cuts,” as it is “a valuable strategy in different contexts, as different situations require different approaches,” he points out.
“This cautious, step-by-step approach allows us to observe the economy’s responses to our decisions, and allows us to continually refine our understanding of the impact our actions have,” Lane explained.
On the other hand, regarding Donald Trump’s policies, the senior European official has mentioned that the net effect on the world economy “is clearly negative”, although he defends that the eurozone, a continental-sized economy, does not trade exclusively with the United States. . “We will have to strike a balance in our assessment between external pressure on inflation and possibly less internal pressure on inflation,” he explained.
Joachim Nagel calls for caution
The president of the Bundesbank, Joachim Nagel, has also sent a message supporting Lane’s request for caution. For the German, now “it is important to be cautious and soften monetary policy gradually, and without haste,” recalls the ECB hawk. Furthermore, in the same vein as Lane’s speech, he confirms that the ECB will decide in December, when it will have its last meeting of the year, what the appropriate move will be, and it will be based on the available data and the new economic forecasts that the ECB will publish. that month to make the decision that you consider most appropriate.
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