ECB’s de Guindos: Focus On Medium Term ‘Much More Important’ Than Fine-Tuning

14 November 2024

By Marta Vilar – MADRID (Econostream) – European Central Bank Vice President Luis de Guindos said on Thursday that monetary policy should be driven by the focus on the medium term, not by the desire to fine-tune.

In an on-stage conversation at the Financial Sector’s Outlook Conference hosted by Spanish Newspaper ABC and consultancy firm Deloitte in Madrid, de Guindos said that the ECB believed that ‘inflation will stably converge to 2%, and that is a confidence element which should determine where interest rates are.’

For de Guindos, fine-tuning ‘doesn’t make much sense’, with the ECB’s monetary policy stance in the medium term ‘much more important’.

Core inflation data were all going ‘in the right direction’, but uncertainty remained with respect to services inflation, he said.

‘We expect wage growth to slow, especially in 2025, and productivity to recover, which would result in a moderation of unit labour costs and will allow services inflation to slow further in upcoming months’, he added.

Asked about Donald Trump’s win in the US presidential election, de Guindos said that the ECB had to see what policies were ultimately implemented.

‘Protectionism winds up creating a supply shock in the global economy and it is not positive in terms of inflation’, he said.

Big economies that implemented tariffs often did not realise that retaliation tended to be the response, he said, and that might lead to a trade war, as occurred in the 1930s.

‘This impacts on inflation by raising it. We have to take this into account’, he added.

Trump’s fiscal policy should also be monitored by the ECB, according to de Guindos. ‘If you apply expansionary fiscal policies, markets will react and rates will rise’, he said.