ECB chief Lagarde: fight against inflation not yet over
Has the worst been dealt with after the inflation shock? According to European Central Bank (ECB) President Christine Lagarde, the economy could still face new supply-side shocks. This is also evident from a look at past crises, where "soft landings" were rarely successful.
The European Central Bank (ECB), according to its President Christine Lagarde, cannot yet be certain that it has won the battle against inflation. As Lagarde stated at the opening of the monetary policy symposium in Portugal's Sintra, the ECB is also unsure if its monetary policy might not still lead to a recession.
"There are still uncertainties regarding future inflation, particularly with regard to how the interlinkages between profits, wages, and productivity will develop and whether the economy will be hit by new supply shocks," Lagarde said, according to the published speech text. "It will take some time before we have collected enough data to be certain that the risks of inflation overshooting the target have passed," she added.
Given the magnitude of the inflation shock, Lagarde stated that a "soft landing" is still not guaranteed. "A look at historical interest rate cycles since 1970 shows that the costs for the economy are usually quite high when the major central banks raise interest rates at high energy prices," Lagarde said. Only about 15% of the successful soft landings in this period - defined as avoiding a recession or a significant worsening of the employment situation - have been achieved following energy price shocks.
"The strong labor market means we can take our time to gather new information, but we must also be aware that growth prospects remain uncertain," said the ECB President. All this underscores the determination to be data-dependent and to make political decisions from meeting to meeting.
Despite the assertions of Financial regulation being effective in mitigating economic instability, Christine Lagarde, the ECB President, emphasizes the potential for new supply-side shocks in Financial markets. The ECB, under Lagarde's leadership, is carefully considering the impact of its monetary policy on the economy to prevent inadvertently triggering a recession, demonstrating the complexity of Financial regulation in practice.
