ECB’s Lagarde: Could Possibly Be Mild Recession, But Insufficient to Deal with Inflation
3 November 2022
By David Barwick – RIGA (Econostream) – European Central Bank President Christine Lagarde on Thursday said that any recession in the euro area would be mild and thus not the remedy for elevated inflation.
During a panel discussion at a conference of Latvijas Banka, Lagarde said that Europe’s central bankers were ‘determined to achieve the objective, to deliver on that mandate that we have, and … we will do so using all the instruments available to us in our toolbox … and deciding meeting by meeting what is the most appropriate and what is the most effective ways of meeting our target.’
A ‘possibly mild recession’ was not excluded, though not yet the baseline scenario, she said. In any event, ‘we do not believe that that recession will be sufficient’ to bring inflation back down, she said, so that monetary authorities ‘need to continue to deliver on our mandate and find that interest rate’ that will allow the restoration of price stability.
Though previous measures to provide monetary accommodation, in particular in the context of the pandemic, were justified, she said, now ‘we have to withdraw anything we have done in the past … to make sure that inflation expectations remain anchored and that we really fight the risk of those expectations de-anchoring.’
‘For the moment’, she said, expectations remained ‘broadly anchored.’
Asked by the panel moderator, ECB Governing Council member Mārtiņš Kazāks, whether the US Federal Reserve’s hawkish approach to policy meant that the ECB could do correspondingly less, Lagarde replied that ‘that would not be the appropriate conclusion.’
In this context, she emphasised the divergences between the economies of the US and the Eurozone, citing in particular respective labour market developments. US inflation was driven by demand-side factors and the Fed was ‘operating in an extremely tight labour market’, she said.
‘So we have to be mindful of the differences’, she said. ‘Having said that, there is a great interdependency, if you will, that is a result of the financial markets … and we see that in yields movements very clearly.’
‘So we have to be mindful of each other and we have to be attentive to possible spillovers … but each of us … have our respective mandate, and … we are not alike’, she said.