ECB Insight: Lagarde Coins a New Term – ‘Framework Guidance’ – But, Understandably, That’s All

12 March 2025

By David Barwick – FRANKFURT (Econostream) – Under the circumstances, European Central Bank President Christine Lagarde's speech on Wednesday may have been as newsworthy as it could have been.

With the ECB attached ever more firmly to its data-driven, meeting-by-meeting approach, and it being less than a week since the Governing Council’s last decision - and Lagarde’s subsequent insistence on leaving the further course of monetary policy wide open - there was arguably little potential for her to shed light on how policy could evolve in the coming months.

Still, there it was on the agenda, inconvenient perhaps but unavoidable - the annual conference The ECB and its Watchers, at which a keynote policy speech from the ECB’s leader is de rigueur.

The result was, not surprisingly, devoid of real news, and one sensed that this might be so right from the start of her speech.

Uncertainty is ‘exceptionally high’, making ‘a strong commitment to maintaining price stability over the medium term … more important than ever’ and putting a premium on the ‘agility to respond to new shocks’ and ‘clarity about our reaction function’, she said.

We can all agree that these are profoundly uncertain times, and we don’t begrudge policymakers the insistence on this point.

As for the rest of it, we have a hard time imagining a central banker ever losing credibility by declaring the fulfilment of his mandate ‘more important than ever’. Nor is it worth disputing the value of agility and clarity.

Still, there is probably always room for the ECB to clarify its reaction function, so Lagarde might have had something new to say here, especially after she suggested that ‘we can clarify what kind of data we will look at to make our decisions, which helps the public to distinguish signals from noise.’

However, as it soon turned out, she did not mean ‘we can’ so much in the forward-looking sense of a recent realisation henceforth to be applied in practice to improve communication, but rather as a backward-looking endorsement of how the ECB has already been operating for some time.

The fact is that the ECB is unlikely ever to be too forthcoming with details about the data points it parses and the respective weight it assigns each to reach policy decisions.

In broad lines, yes, typified by precisely the example Lagarde cited, namely the three pillars on which the ECB’s analyses of the past two years have been based.

Those are, to quote all recent monetary policy statements, ‘our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission.’

Better than nothing, yes. But markets will always be left wondering whether at a given moment this or that variable has suddenly taken on added importance or, alternatively, been demoted in value.

In any case, Lagarde gave no sign that anything was actually changing.

‘In this way, clarity on the reaction function can be seen as providing framework guidance [her italics] – i.e. a type of guidance that comes from the discipline implicit in a monetary policy framework – without pre-committing to any particular rate path, as the latter would excessively constrain agility’, she said.

If nothing else, Lagarde at least coined a term: framework guidance. If this is to be the beginning of something new that goes beyond an expression, however, it wasn’t at all evident.