ECBs Lane: ECB will keep rates high until inflation returns to 2%, but may take some time

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

This article was written by Greg Michalowski at www.forexlive.com.