The ECB chief economist expects inflation to remain high in the short term.
(Photo: Reuters)
Frankfurt ECB chief economist Philip Lane has spoken out in favor of a steady progress on the course of interest rate hikes. “A steady pace — which is neither too slow nor too fast — is important in closing the gap to the terminal rate for a number of reasons,” Lane said at a bank meeting in Barcelona on Monday, according to the speech.
“A multiple-step adjustment path toward the final rate also makes it easier to make mid-course corrections as circumstances change,” he explained. Lane did not say how much the next interest rate hike by the European Central Bank (ECB) should be at the September meeting.
At the weekend, at the US Federal Reserve’s monetary policy symposium in Jackson Hole, several ECB monetary watchdogs advocated another major rate hike in September. In July, the ECB initiated the turnaround in interest rates in the fight against inflation and, contrary to what had previously been promised, raised the key rates by a strong 0.50 percentage points. The key interest rate is currently 0.50 percent. It was the first rate hike in eleven years.
The next ECB monetary policy meeting is on September 8th. The money market is now also speculating on a very large interest rate hike of 0.75 percentage points – an increase of 0.50 points is already firmly factored into the prices.
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In his contribution, Lane pointed out that inflation is expected to remain high in the short term. Among the driving factors he counted in particular the strong price pressure for gas and energy as well as food.
On the other hand, over time, a reduction in supply shortages and the completion of the post-pandemic reopening phase of the economy, among other things, would help inflation ease back down. The challenge for monetary policy is to assess the strength and persistence of the dynamics behind high inflation rates.
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