ECB’s Lane: No Reason Not to Expect Several Cuts, but Our Emphasis Is on Agility

7 February 2025

By Marta Vilar – MADRID (Econostream) – European Central Bank Chief Economist Philip Lane said on Friday that he was not uncomfortable with current market expectations of more cuts, but that the ECB's policy had to emphasise ‘agility’.

In a Bloomberg podcast, Lane said that the ECB intended to be ‘cautious’ and that this explained why it continuously refused to precommit.

‘So even if the market is pricing several cuts, you know, I'm not saying there’s any reason not to have that market view’, he added. ‘From a policy point of view, our emphasis is really on agility.’

In that context, he turned to energy prices, observing that inflationary pressure from this source could shift to the downside or upside at any moment 'in the coming weeks.'

The ECB had a ‘balancing act’ to perform, he said.

‘We do have the recovery, but we also know that essentially the disinflation is well on track’, he said. ‘And as disinflation continues, finding ... the new normal for interest rates is essentially a part of our challenge.’

In its latest interest rate cut from 3% to 2.75%, the ECB was implying that 3% was ‘not the new normal’, according to Lane.

The debate around the neutral rate was becoming less relevant, he said.

‘What is the probability in the next number of months [that] the world is neutral, so there are no shocks?’, he asked rhetorically.

The neutral rate was a nice theoretical concept, but the ECB had to be more focussed on verifying whether shocks materialised or were ‘just noise’, he said.

‘Let’s not talk about neutrality, let’s talk about what’s appropriate’, he said.

Unemployment in the Eurozone was the lowest in historical records while there were some differences between major countries, he acknowledged.

‘When you talk about the US economy, we all think of the US in the aggregate, but of course there’s differences across California, Chicago, New York and so on’, he said. ‘Same for us; there are big differences right now across some of the major countries.’

The ECB was not expecting to return to an era of rates close to zero, he said.