ECB’s Lagarde: Rise in Bond Yields Suggests Increase in Inflation Expectations Not Significant

20 March 2025

By Marta Vilar – MADRID (Econostream) – European Central Bank President Christine Lagarde said on Thursday that the recent rise of European bond yields suggested that the impact of higher defense spending on inflation expectations will not be significant.

In the Q&A session at the Hearing of the Committee on Economic and Monetary Affairs of the European Parliament, Lagarde said that despite the ‘significant’ increase in bond yields seen after the announcement of higher German defence spending, spreads had tightened rather than widened.

‘My suspicion is that markets are seeing it as [producing] a growth increase in the future … Is there a little inflation anticipation associated with that? Probably, but not that significant based on our calculation’, she said.

The expected increase in European defense spending will have an impact on economic growth and inflation, she said.

The ECB was also paying attention to the evolution of the euro versus the US dollar as it affected the inflation outlook, she said.

‘[I]t does have an impact on inflation through various channels, but other than that there are no other conclusions to draw from the appreciation of one vs the other’, she said.

Trade restrictions would impact growth in the first year after the rise in tariffs, she said.

‘So, you know, whatever happens either has already been priced in in terms of uncertainty and lack of confidence as a result’, she said.

Confidence was now slightly recovering in the Eurozone and could improve more than what the ECB was expecting, she said.