ECB’s Makhlouf: We Consider External Factors, but We Don’t Follow the Fed

17 June 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member Gabriel Makhlouf on Monday said that when deciding on interest rates, the ECB looked at the impact of external influences on the euro area but did not follow the United States Federal Reserve’s monetary policy.

Speaking at the Global Independence Centre in Philadelphia, Makhlouf, who heads the Central Bank of Ireland, said, according to a text provided, ‘[W]e take account of all influences on macroeconomic developments in the euro area, wherever they occur in the world. But, like other central banks, we do not “follow the Fed” in a mechanistic sense.’

If the gap in productivity between the US and the euro area continued to expand, different growth paths could imply different neutral interest rates in both economies, he said.

‘I mean different rates which keep the economy operating at potential without inflationary or deflationary pressures’, he said. ‘This would in turn drive a wider gap between policy rates required by the Federal Reserve and ECB to maintain inflation on target which could affect capital flows, exchange rates and US-EU trade.’

A more productive economy would contribute to lower price pressures by raising potential growth and boosting the supply side, he said.

The Governing Council would continue to follow a data-dependent and meeting-by-meeting approach and not commit to a particular rate path, he said.

‘At our meeting on the 6 June, we cut rates by 25bp’, he said. ‘This leaves policy rates firmly in restrictive territory, given where we see the nominal neutral rate (around 2% in latest ECB estimates) and the path for inflation’, he said.