ECB Insight: Lane Retreats to Safer Ground on Question of December Rate Hike Size

6 December 2022

By David Barwick – FRANKFURT (Econostream) – Strictly speaking, European Central Bank Chief Economist Philip Lane cannot be said to have walked back his previous interview in the one published on Tuesday. But what might appear at first glance to have been doubling down was in fact decidedly more cautious in tone and scope than last month.

Asked in the first interview, published on November 21, what it would take for him to recommend a 75bp hike in December, virtually his entire answer, delivered in a somewhat dismissive spirit, was about why 75bp might be excessive:

• ‘neither necessary nor wise to try and jump immediately to your target rate’
• ‘not necessary to conceive completing that transition in December’
• ‘one platform for considering a very large hike, such as 75bp, is no longer there’
• ‘the more you've already done on a cumulative basis, that changes the pros and cons of any given increment’
• ‘we are at a different point now’
• ‘there are lags in the transmission process.’

Nevertheless, asked in the more recent interview whether it was still the case that he ‘didn’t see many arguments in favour of a 75bp increase in rates’, Lane differed with this characterisation by the interviewer of his earlier position.

Fair or not, we don’t need to go there to make the point that whilst there is obvious overlap between the two interviews, the overlap on the question of 75bp versus 50bp is mostly limited to a relatively unassailable argument repeated various times: the ECB has gotten from point A to point B and this would be an aspect of the Governing Council’s deliberations. To wit:

• ‘the starting point is different now’
• ‘We’ve already hiked rates by 200bp’
• ‘we cannot decide on the appropriate size of the increase in any one meeting without considering the starting point’
• ‘the starting point is now a lot higher than where we were’
• ‘we should take into account the scale of what we have already done’
• ‘the basis for the decision will be different’

In other words, Lane retreated to markedly safer ground on this issue in the later interview. As he well knows, nobody is likely to deny that the ECB has hiked rates by a cumulative 200bp, or that the Council should take this into account.

In contrast to the interview that appeared on November 21, Lane today steered clear of polemics, meaning that talk of what would be ‘neither necessary nor wise’ was absent. In general, he completely avoided staking out as clear a position as he had when he stated two weeks ago that one argument in support of 75bp ‘is no longer there’.

We don’t think for a moment that Lane’s personal preference as of today is for 75bp. But the more recent comments from him suggest a certain hesitancy to venture quite as far out on that limb as before.