ECB’s Nagel: We Shouldn’t Be Too Optimistic About Next Rate Decision

12 February 2025

By Marta Vilar – LONDON (Econostream) – European Central Bank Governing Council member Joachim Nagel said on Wednesday that the ECB should not be overly optimistic about the next interest rate decision.

In the Q&A session of a lecture at the London School of Economics and Political Science, Nagel, who heads the German Bundesbank, said that ‘we shouldn’t be too over-optimistic when coming to the next rate decision.’

It was positive not to show ‘too much complacency’ with the expected rate path, he argued.

The situation was getting ‘more and more complicated’, he said, and high uncertainty stemmed from the US administration’s moves.

However, Nagel described himself as ‘very convinced’ of the return of inflation to the 2% by mid-2025.

‘I will not say that the mission is accomplished, but it looks very good’, he said.

The ECB should not appear to be on ‘autopilot’ when approaching r*, he indicated.

The neutral rate was an ‘orientation’ for monetary policy setting but should not be the only tool used, he said.

Nagel argued for keeping the meeting-by-meeting approach under the current uncertain circumstances, but did not rule out returning to forward guidance in the future.

‘I wouldn’t say forward guidance is dead, but in such environment with uncertainty, this meeting-by-meeting approach is the best way of dealing with uncertainties’, he said.

Asked about the possibility of going below neutral, Nagel argued that spillovers from the sluggish economy could cause inflation to undershoot.

Cutting rates into accommodative territory was not a possibility to which he currently gave a ‘high probability’, he said.