ECB’s chief economist Philip Lane in an interview said:
- The ECB’s decision to raise interest rates took longer than the Federal Reserve’s due to several factors.
- In 2021, demand played a more significant role in driving US inflation, making monetary policy more immediate.
- The ECB did not cut interest rates during the pandemic, unlike the Fed and BoE, so the initial rate increases were reversing pandemic cuts.
- The primary source of inflation was the energy shock, as reflected in consumer surveys.
- Raising rates helps mitigate the impact of energy price increases on consumer prices.
- The ECB aims to slow down wage growth in 2024 to help inflation return to 2%.
- The ECB’s single interest rate policy requires national policies to fill gaps in individual countries.
- The ECB’s balance sheet is shrinking as it stops reinvesting proceeds from maturing bonds, and bond sales are not a primary concern.
- The ECB will keep interest rates high until inflation returns to 2%, but this may take some time.
- The “neutral” level for interest rates is likely around 2%, reflecting long-term average policy rates.
- The ECB acknowledges the need to express humility in the face of uncertainty and learn from unexpected developments.
- The ECB’s policy decisions are driven by the need to address high inflation rather than a particular faction within the institution.
The ECB raise rates by 25 basis points on September 14. The ECB will next meet on October 26.
