ECB’s Lagarde: No Question in My Mind We’ll Act Once Our Forward Guidance Conditions Are Met
21 January 2022
By David Barwick – FRANKFURT (Econostream) – The European Central Bank will take action once the conditions of its forward guidance are met, ECB President Christine Lagarde said Friday.
In remarks at the online World Economic Forum, Lagarde argued that factors like demand and employment were ‘clearly indicating that we’re not moving at the same speed and we are unlikely to experience the same kind of inflation increases that the US market has faced.’
The ECB’s forward guidance may be complicated but is ‘pretty solid’, she said. ‘We know what to look at, when to combine the three [conditions], and we will act. There's no question in my mind that once the criterias are satisfied, we will. But at the moment, they’re not satisfied.’
‘If and when those three criterias are satisfied, then of course we need to act’, she said. ‘And we have, by the way. We have actually started, because we are now scheduling the end of our exceptional programme at the end of March.’
The ECB is ‘phasing out our net asset purchases in significant volumes, moving from 80 down to 20 billion per month over the course of ’22, and we know exactly in which sequence we need to move, and it’s once we have completed our net asset purchases, then we will look at other tools in the toolbox, including interest rate hikes’, she said.
The recovery is ‘stronger than anything that we had expected’, she said.. ‘In the advanced economies, it has just been staggering.’
December euro area inflation of 5% was ‘a striking number’, she said. Whether high inflation will become sustainable depends on wages, she said.
‘Are salary negotiations, are collective discussions between unions and employers actually driving towards what many would fear, which is this second-round effect that would then lead to inflation being sustainable for the medium term and at a level that maybe is not desirable because it is above target?’ she asked.
‘First of all, we're not seeing in the euro area in particular and in Europe in general, we’re not seeing these wages negotiations, you know, being way up, not yet at the moment at least’, she continued. ‘And as a result of that, we are not seeing this sustainable moment that would lead to inflation spiralling out of control.’
Rather, although one must recognise the high uncertainty surrounding forecasts, she said, ‘we assume for the moment that energy prices will stabilise in the course of ’22, that those bottlenecks and those congested ports and … all the rest of it will also stabilise in the course of ’22, and that gradually those inflation numbers will decline.’
That said, she noted, the next set of inflation projections could always tell another story, and the ECB must be ‘open to any change’ in the outlook.