#Lagarde #cautious #rates #avoid #rash #choices
The 2% target is closer but the inflationary picture is not yet completely stable, any imprudence could cost dearly. Christine Lagarde, in her last meeting with the MEPs of the Economic and Monetary Affairs commission in this legislature, does not change her strategy and, once again, on the reduction of rates by the ECB, she opts for maximum caution. With one reason, above all: “the last thing I want is to make rash decisions and then see inflation rebound and have to go back”, she warned.
“We will continue to follow a data-dependent approach to determine the appropriate level and duration of restrictions,” is the line confirmed by the Eurotower number one. Those who expected bombastic announcements, among other things on the day of the EU Commission’s winter estimates on GDP and inflation (with 2.7% expected for the eurozone in 2024), were disappointed. Lagarde returned to defend the rate raising action implemented by the ECB, confirmed that the disinflation process will continue in 2024, but also underlined some variables that make the picture more uncertain. First of all, the fact that energy prices remain “unpredictable”. Secondly, the persistence of a high level of inflation in the services sector.
“Wage growth continues to be strong, it is expected to become a more relevant factor than inflationary dynamics in the coming quarters”, explained the president of Eurotower, avoiding giving any clues as to when the expected announcement of the first rate cut will take place. will materialize, whether in late spring or summer. However, the line of caution had a positive effect on European stock markets. Also because, in her speech to the EP, “I never said that we have no intention of reducing rates”, Lagarde herself clarified when pressed by MEPs. And compared to the trend that began in July 2022, with rates at an all-time high of 4.5%, this is evidently still good news for the markets. Lagarde’s caution, however, vanished on the other issues at the center of the debate. The capital union, for the ECB, remains a guiding star. So much so that, faced with the resistance recorded so far by various European chancelleries, Lagarde defined that of a sectoral capital union anchored to the green as “a path to explore”. With an axiom: massive investments are needed for the transition, around 700 billion per year. And the Recovery Fund and Repower “are just a first step”, she remarked. The message, in this case, also had a political declination. “The 25 years of the single currency have been a success but not all the goals have been achieved”, explained the president of the ECB. And among the latter are the banking and capital unions. Hence Lagarde’s appeal less than 4 months before the vote: “the next European elections will be an opportunity for an ambitious program on our economic and monetary union. It is essential that all political forces seize this opportunity”.
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