ECB’s Lane: Markets Expect Timely Return to Price Stability
22 May 2023
By David Barwick – VIENNA (Econostream) – European Central Bank Executive Board member Philip Lane on Monday extolled the solid anchoring of financial market expectations and highlighted the importance of this for monetary policy.
‘They [markets] believe that inflation will come back to 2% in a timely manner’, he said during a panel at the annual Economics Conference of the Austrian National Bank. ‘Not overnight, but within the foreseeable future.’
However, he made clear, it was up to the ECB to ‘get inflation back quickly’ or face a ‘significant medium-term and long-term inflation risk, which we do not have now.’
‘Are credit conditions tightening in a surprising way?’ he asked. ‘And the most recent Bank Lending Survey was surprising.’
‘We do think … that monetary policy works, not just through the price effect, not just through observed lending rates and so on’, he said. Other aspects of lending such as terms and conditions corroborated its effectiveness, he said.
Lane appeared cautiously optimistic about euro area wage developments, suggesting that they would not prevent a return to price stability.
‘One of the stable upside risks we have is if wages respond more quickly than that’, he said nevertheless. ‘So, it’s definitely one reason why we do have this data-driven approach…’
In other comments, Lane remarked that the ‘pretty strong’ withdrawal of ECB support from bond markets and the significant ongoing rate hikes had all ‘been smoothly absorbed.’
‘The transmission is essentially predictable and effective’, he said.
‘Essentially, once this inflation problem is solved, for the next several years we will have interest rates that are cyclically high.’