Philip Lane, the chief economist at the European Central Bank, spoke on Monday about the path for interest rates, advocating a steady pace that is neither too slow nor too fast. He suggested a middle-ground approach that allows adjustments to be made when necessary.
Lane made these points at a roundtable during the annual meeting organized by the Central Bank Research Association, held at the University of Pompeu Fabra in Barcelona. He previously led the Central Bank of Ireland from 2015 to 2019, a history that informs his cautious stance on gradual policy moves.
The ECB has faced elevated inflation driven by the impacts of the war in Ukraine and post-pandemic dynamics. Recently, it approved a half-point rate hike, bringing the key rate to 0.50 percent for the first time in over a decade. While Lane did not forecast specific future hikes, he emphasized that any changes should occur gradually rather than abruptly.
He underscored that upside risks to inflation appear more pronounced than downside risks at present, yet warned the trajectory could shift if inflation remains weak due to rising energy costs. The takeaway is to avoid sudden policy corrections and instead adjust rates at a steady pace, correcting as needed to keep the inflation pathway on track.
Lane also noted that the next Governing Council meeting marks the start of a new phase. In light of high uncertainty, data should be gathered and analyzed thoroughly to assess risks to the inflation target. The ECB’s stated objective remains to bring inflation back to 2 percent over the medium term.
These remarks came during CEBRA’s annual gathering, which runs Monday through Wednesday and draws more than 200 researchers from central banks worldwide. Lane shared a roundtable with Martin Flodén, vice-president of the Swedish central bank, and Diogo Abry Guillen, vice-president for economic policy at Brazil’s central bank. Margarita Delgado, vice-president of the Bank of Spain, is scheduled to speak later in the event.
Across three days, experts discuss current economic conditions in more than 30 parallel sessions, focusing on the pressures of high inflation and rising interest rates. The conference coincides with global discussions about the pace and magnitude of monetary tightening in different economies.
The global policy conversation intensified as the Federal Reserve faced its own challenges. Federal Reserve Chair Jerome Powell warned that continued rate increases could bring tangible pain to companies and households if restrictive policy endures too long, a cautionary note echoed in many central banks as they weigh the costs of inflation control against growth prospects.
Powell notes that fighting inflation can mean costs for families and businesses
At the opening of a major meeting of economic leaders in Jackson Hole, Wyoming, Powell referenced the United States’ recent rate hike cycle. The Federal Reserve had raised rates by 0.75 percentage points in July, marking a sharp step in the tightening campaign. He also indicated that another sizable increase could be possible in September if incoming data and the outlook warrant such a move, though he stressed that policy responses will depend on evolving economic signals.
Overall, policymakers around the world are balancing the need to curb inflation with the demand to sustain growth. Analysts in North America and Europe monitor a range of indicators, including energy prices, labor markets, and consumer prices, as they assess when to adjust policy settings and how quickly to move. The ongoing dialogue reflects a shared concern about inflation staying higher for longer and the trade-offs involved in navigating a cautious but persistent normalization of monetary policy, all while aiming to preserve financial stability and confidence in the economy. [Citation: ECB communications, official meeting notes, and central bank statements]