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If policymakers do not continue to cut interest rates, inflation in the euro zone could fall below the European Central Bank’s 2 percent target, chief economist Philip Lane warned.
in Interview In an interview with Austrian daily Der Standard published on Monday, Lane said that much less inflation than inflation is the risk ratepayers now need to consider.
Borrowing costs should not be “sustained too long,” he said, as growth could be so weak that “inflation could fall materially below expectations.” He stressed that, as high rates Inflation“This is also undesirable”.
Lane’s comments reflect a growing transatlantic gap in monetary policy as the Federal Reserve later shifted to a more hawkish tone. Inflation has risen in the US. And strong job growth exceeded expectations.
Investors are waiting ECB After policymakers lowered the benchmark deposit rate in four steps from 4 to 3 percent starting in June, it will continue to cut quarter-point rates until borrowing costs reach about 2 percent.
On Monday, eurozone bond yields rose to fresh multi-month highs following Friday’s strong U.S. jobs data, reflecting expectations of higher global borrowing costs. Germany’s benchmark 10-year bond yield rose 3 basis points to 2.6 percent, the highest since July.
Finland’s central bank governor and member of the ECB’s governing council, Olli Rehn, told Bloomberg TV that further rate cuts are necessary in the euro area regardless of the Fed’s moves.
“(The ECB) is not the 13th federal district of the Federal Reserve System. We will take decisions based on the mandate given to us, which is price stability in the euro area,” he said in an interview in Hong Kong.
High inflation in the services sector, which remained at 4 percent in December, should play a “middle way of being either very aggressive or cautious” in 2025, Lane said. .
“If interest rates fall too quickly, it’s difficult to control inflation,” Lane told Der Standard.
But the chief economist has warned more bluntly than in past public statements that weak growth threatens price stability.
“Also, we need to make sure that the economy does not grow too slowly because then we will face a new problem, which is that inflation may stabilize below the target,” he said.
About a A recent Financial Times survey While many economists said the ECB had been too slow to cut interest rates, Lane said the central bank’s “primary focus” was on inflation rather than growth. However, he added, “growth is the fundamental driver of inflation.”
But policymakers “see no risk of a downturn that would require a dramatic acceleration in monetary policy,” a hint that the large, half-percentage-point rate cuts some economists had hoped for would be unlikely.
