ECB Insight: Lagarde Acknowledges Risk of Waiting Too Long, Reinforces June’s Pole Position

20 March 2024

By David Barwick – FRANKFURT (Econostream) – European Central Bank President Christine Lagarde on Wednesday made it clearer yet that the ECB would before long, most probably in June, start easing its monetary policy stance, even in the absence of complete certainty about the choice of timing.

In a comprehensive speech on the monetary policy outlook at the ECB Watchers Conference, Lagarde voiced the sentiment we believe was first expressed explicitly by Belgian National Bank Governor Pierre Wunsch in early February when he said that ‘at some point, we are going to have to bet on where inflation’s going’.

‘Given the delays with which these data become available, we cannot wait until we have all the relevant information’, Lagarde said today. ‘To do so could risk being too late in adjusting policy.’

That goes a distinct step beyond her previous assurances, such as at the press conference on 7 March, when she had asserted that ‘I am not saying here that we will wait until we are at 2% and that we see 2% to take a decision.’

Today, she recognised not merely the danger of getting behind the curve, but also the fact that this danger was a risk inherent to the ECB’s current strategy of waiting for more information before acting.

Having acknowledged the existence of such a pitfall, she seemed keen on immediately assuring listeners that the ECB would successfully skirt it. Monetary authorities would soon have ‘two important pieces of evidence that could raise our confidence level sufficiently for a first policy move’, she said in this context.

In particular, the ECB was looking forward to wage data, including that on negotiated wages in 1Q that would be available at end-May, she said. In addition, the ECB would update its macroeconomic projections in June.

Lagarde went into considerable detail as to the significance of the June forecasts, adding that ‘a sufficient degree of alignment between the path of underlying inflation and our projections’ as well as ongoing strong policy transmission were necessary conditions for easing.

With that, she effectively reconfirmed that the ECB’s 6 June Governing Council meeting would almost certainly at least be the first date at which a rate cut would be an option. Her next remarks appeared to assume implicitly that it would in fact be the date of a cut, with the question then being whether it would signal a regular series of similar moves.

There was no autopilot with respect to policy easing, she made clear.

‘But thereafter [i.e. after June], domestic price pressures will still be visible’, she said, citing the likelihood of high service price pressures throughout 2024. ‘So, there will be a period ahead where we need to confirm on an ongoing basis that the incoming data supports our inflation outlook’, she said.

The data-dependent, meeting-by-meeting approach would continue to apply, ruling out any particular rate path ‘even after the first cut’, she said.

In other words, a cut in June and then we’ll see.