ECB’s Lane: Trade Restrictions Bad for Economy, Impact on Inflation Uncertain

5 February 2025

ECB’s Lane: Trade Restrictions Bad for Economy, Impact on Inflation Uncertain
Philip Lane, chief economist of the European Central Bank, at the Joint ECB-IMF-IMFER Conference 2024 on Global Challenges and Channels for Fiscal and Monetary Policy in Frankfurt on July 23, 2024. Photo by Felix Schmitt for ECB under CC BY-NC-ND 2.0.

By Marta Vilar – MADRID (Econostream) – European Central Bank Chief Economist Philip Lane said on Wednesday that tariffs would have a negative effect in Europe on growth but an uncertain impact in terms of inflation.

In the Q&A session following his prepared remarks at the Peterson Institute for International Economics (PIIE) in Washington D.C., Lane was asked about the potential impact of US tariffs.

‘[H]aving introduced trade restrictions is going to be bad for output under most scenarios’, he said. ‘The effect on inflation will depend on the bilateral policies, the global implications, and then also … it is the impact on, if you like, investor confidence and consumer confidence in Europe.’

If basic assumptions about how the economy works were challenged, there would be a ‘hit’ to domestic demand that ‘would matter quite a bit for monetary policy.’

Lane observed that there was no big debate on inflation potentially undershooting 2% target in the US.

Lane said that, given that there are upside and downside risks to inflation, the ECB had to deliver a ‘middle path’ towards the 2% target.

‘[T]he middle path I think is the appropriate framing for the euro area policy’, he said. ‘Over here I’m not hearing too much discussion right now about inflation collapsing below the target.’

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