2024-08-24 18:43:14
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The ECB’s chief economist warned that a return to the bank’s 2% inflation target was “not certain” as he said interest rates would need to remain restrictive for the time being.
Philip Lane told the Kansas City Federal Reserve’s annual global symposium in Jackson Hole, Wyoming, that the euro zone has made “good progress” so far in containing price pressures. However, he was cautious about how much assistance the ECB will be able to provide to borrowers.
“The return to target is not certain,” he told a panel discussion on Saturday. “The stance of monetary policy must remain tight until the deflation process is guided back to target in a timely manner.”
The ECB was one of the first among developed economy central banks to start easing policy, cutting its main deposit rate by a quarter percentage point in June, the first such move by the ECB in nearly five years.
Markets expect the ECB to cut interest rates twice more this year, with the next reduction coming in September.
Lane’s comments come as the U.S. central bank governor and the Bank of England governor are debating how far to cut interest rates as inflation retreats and the labor market begins to soften.
Federal Reserve Chairman Jay Powell gave the strongest signal yet of a September rate cut in a speech at Jackson Hole on Friday, saying “the time has come for a policy adjustment.”
“The direction of action is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks,” Powell said.
Late on Friday, Bank of England Governor Andrew Bailey said he was “cautiously optimistic” about inflation but that it was “too early to declare victory” after prices had been rising for a while.
The Bank of England cut interest rates in a tie-breaking vote in August and is expected to keep rates unchanged in September and cut again in November.
Now that inflation has receded, policymakers appear increasingly focused on protecting their respective economies from undue damage.
Ryan said the return of inflation to target needed to be “sustainable”.
“If the interest rate path remains too high for too long, inflation will remain below target over the medium term and will be ineffective in minimizing side effects on output and employment,” he said.
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