Transcript: Interview with ECB Governing Council member Rehn on 5 December 2025

8 December 2025

By David Barwick – HELSINKI (Econostream) – Following is the full transcript of the interview conducted by Econostream on 5 December 2025 with Olli Rehn, Governor of the Bank of Finland and member of the Governing Council of the European Central Bank:

Q: Governor, it’s striking how many Council members argue that the 2028 projection doesn’t matter. The ECB was happy to emphasize the symmetry of the target not long ago but now seems to find symmetry not so convenient. Is persistent, projected undershooting simply no longer a concern?

A: We on the Governing Council all committed ourselves to the medium-term symmetric 2% target when we did our strategy update in July. I trust everybody is committed to that strategy; I have no reason to think otherwise. Our target is indeed symmetric, so upside and downside deviations are equally undesirable. Its medium-term focus lets us look through small or temporary deviations. This is conditional on medium-term inflation expectations staying well anchored. We have a very strong commitment to symmetry.

Q: Have recent public pronouncements by Council members been consistent with this?

A: A lively discussion on monetary policy is a positive thing. We are taking decisions meeting by meeting, based on a comprehensive assessment of the latest data.

Q: Since you mentioned the importance of expectations, could this downplaying of 2028 and of persistent undershooting undermine expectations?

A: Let’s look at inflation risks. More recently, we see risks in both directions, which is why we call them two-sided. On the upside, geo-economic fragmentation could affect supply chains, or growth in Europe could be stronger. But there are clearly downside risks. Leading indicators show wages continuing to moderate, affecting services inflation in the medium term. The strengthening of the euro this year is still passing through, and the growth outlook is still relatively subdued. In sum, we have a situation where legendary Finnish ski jumper Matti Nykänen once, when asked about his chances, described these as “60–50.” So, downside risks dominate slightly for the moment, but there are also upside risks. This underlines the importance of being data-dependent and looking at both past hard data and various forward-looking indicators and forecasts, so that you have all the raw material for an assessment and a decision.

Q: Does the ECB’s current course expose inflation expectations to downside risk?

A: So far, I would underline that inflation expectations have remained quite well anchored around our 2% target. We set monetary policy so that expectations remain anchored around 2%, and it’s important that we maintain confidence in our policy. This implies that it is essential that we stick to our symmetric inflation target over the medium term.

Q: The Governing Council seems to accept the idea of undershooting out to the medium-term horizon.

A: I cannot speak for the whole Council. I can say only that we are all committed to our strategy, as agreed in July. We have to look at all available data. I’m particularly interested in seeing the December projections for both growth and inflation, and in seeing financial conditions. It’s important to see whether inflation is projected to stabilize around 2% over the medium-term horizon.

Q: Do you share the thinking of those who say the 2028 forecast is a nice input, but we live in a world of huge uncertainty and 2028 is too far into the future to take very seriously?

A: I always take our economic forecasts seriously, as we all do. Of course, further out there’s more uncertainty. But we do medium-term forecasts because our strategy is defined over the medium term. We have been able to utilize this information meaningfully in the past, and that’s what we will do this time as well.

Q: Does the option of a cut warrant more serious consideration based on what we know today?

A: We are not pre-committed to any rate path, and we are really practicing what we preach: sticking to a data-dependent, meeting-by-meeting approach and maintaining full freedom of action. That’s why it’s not meaningful to take a stand now as regards interest rates in December.

Q: But doesn’t it seem that the option of cutting is being excluded ahead of time?

A: I don’t think so. Personally, I am trying to walk the talk, which is sticking to the principles of full optionality, full freedom of action, and moving forward meeting by meeting. And we will all certainly be much better informed in December once we get the forecast and have the monetary policy book at our disposal, providing the necessary analytical raw material for our decisions.

Q: Do you have any preliminary thought as to what 2028 inflation might look like?

A: No. I can only refer to what I expressed concerning the risk balance. But, like Sir John Maynard Keynes said, “If the facts change, I change my view – what do you do, Sir?” So, let’s see what the growth and inflation outlook is in mid-December, and then take decisions.

Q: How should we interpret warnings against “fine-tuning,” which sound mainly like a way of not cutting?

A: I must repeat my view of the importance of taking decisions meeting by meeting based on data. It follows that if the data and analysis warrant, then we can and should take decisions in line with that. Anyway, one might say that generally speaking, most of our moves are fine-tuning, because we normally take decisions of 25bp. So, I’m not a big fan of the expression “fine-tuning.”

Q: Might a low 2028 inflation projection lead the ECB to admit that risks are “60–50” to the downside?

A: It’s genuinely premature to take a stance concerning the 2028 projections. As I said, the downside risks currently dominate slightly, but we also have upside risks. That cannot be denied, and so it’s important to keep an open mind and look at the fresh data and analysis we will get soon. We have a pre-meeting seminar on Wednesday the 17th, and will take decisions on Thursday morning.

Q: It’s become fairly apparent who President Trump would like to appoint to the head of the Federal Reserve: Kevin Hassett. Do you have a view as to what’s likely to happen under Chair Hassett?

A: I prefer not to comment on the specifics of another central bank’s appointment. More generally, we are concerned about central bank independence in the United States, given the political pressure on the Fed, and we take that into account in our monetary policy scenarios. It would of course be a positive outcome if central bank independence were maintained in the US. This is an important issue for all of us globally. At the same time, we have to think deeply about what implications an erosion of central bank independence might have for the ECB in terms of monetary policy and financial stability. For the moment, we can assume, but we simply don’t know. So, we can only do mental exercises and scenario analysis to prepare to make better decisions once we really know what’s happening in Washington, D.C.

Q: Even if the ECB doesn’t respond mechanistically to rate decisions by other jurisdictions, wouldn’t several cuts in a row by the Fed have to lead to a reaction here?

A: It is not impossible we may see a policy regime shift, if you have a clear erosion of central bank independence, which would logically lead to structurally higher inflation. That’s what empirical literature and decades of experience prove, starting with Fed Chair Paul Volcker in the 1980s, when he countered high inflation with tough measures, and central bank independence became a global rule. So, a serious reduction of autonomy in the case of the Fed would logically lead to structurally higher inflation in the US, and this would lead to consequences in Europe that we would need to tackle based on our primary mandate of price stability, one element of which is the exchange rate.

Q: One argument against cutting we hear from more hawkish colleagues is that if the ECB cut again, markets would assume that there would be several cuts coming, not just one. Is that a reasonable concern?

A: No. We decide meeting by meeting. We’re not committed to any predetermined rate path.

Q: What is your current view of the value of a so-called insurance cut, whether now or maybe next year?

A: We’re not in the insurance business — not in December, March or June. So, my response would be the same over time.

Q: Would you agree that the most likely outcome is that we stay on hold for a long time, unless something material were to change?

A: The economy is continuously changing, and we are living under a thick cloud of pervasive uncertainty due to geopolitics and trade wars. That’s one further reason why we have to maintain full freedom of action and take data-dependent decisions meeting by meeting.

Q: What about financial vulnerabilities and high asset valuations and something possibility going wrong there?

A: The European Systemic Risk Board, including in at least its last two risk analyses, and the ECB, including in the latest Financial Stability Review, have warned about excessive market valuations in relation to real economic developments and corporate earnings. The risk notably reflects the fact that much AI investment is now investment in data centers via increased debt, and there is interconnection between the private credit providing the debt to corporates and the regulated banking system. We have to be mindful of systemic risks to financial stability. Having said that, they don’t have an immediate impact on monetary policy, because they have not materialized, and we cannot make monetary policy outside the perimeter of concrete data and economic analysis.

Q: If there were a sharp correction in valuations, where would you expect the funding stress to show up first?

A: It’s increasingly evident that the non-bank spectrum — I call it a spectrum rather than a sector, because the relevant institutions run the gamut from money market funds to family offices, from pension funds to insurances, and other kinds of alternative investment — has grown a lot in the U.S., but also in Europe. In Europe, much of this private credit, in its different forms, is financed by regular banks, larger or sometimes smaller and medium-sized banks. So, it’s the interconnection between private credit and the banking system that is a matter of concern, and that’s what we are looking at.

Q: Is the fear that something might happen in this area at some point an argument by itself to keep the ECB’s powder dry so that it can respond more easily?

A: No, and I don’t believe in the idea of “keeping powder dry.” Rather, this underlines the importance of maintaining strong resilience of Europe’s banking sector and the financial system. So, while we are concerned about banks’ competitiveness and very committed to sensible simplification of regulation and supervision — the high-level task force I’m on should finalize the simplification report before Christmas — at the same time it’s crucial to maintain sufficient capital buffers so that the system is resilient. Because resilience is an insurance against different kinds of crises, and we don’t know what kind of crisis we might face or what systemic risks might hit the European banking system. We have an idea of what the risks are, but we have to be humble and realize that we don’t know all, and we must also be mindful of various interconnections and their potential risks to financial stability.

Q: Everyone agrees that the lack of dynamism in the European economy has a lot to do with structural issues that the ECB is not directly responsible for. But at the same time, isn’t there a link here, in the sense, for example, that the lack of dynamism affects the transmission of monetary policy, it affects r*?

A: There is certainly a link. R* is affected by productivity growth, and productivity growth is also the outcome of economic dynamism or lack of it. Lack of economic dynamism means low productivity growth. Strong economic dynamism, entrepreneurial dynamism, that means strong productivity growth. And that’s one reason why we — “we” meaning the European Union at large and EU member states — should proceed much more speedily and effectively in implementing Mario Draghi’s recommendations, such as creating the Savings and Investment Union, which should have a clear deadline – for instance, 1 January 2028, so that we really can see that it will be carried out, not only talked about.

Q: How comfortable are you with the current level of the euro, and what if it were to strengthen further?

A: The exchange rate is not a policy target for the ECB, but it is one parameter in the equation that we look at when we make monetary policy. It’s affecting both growth — by affecting cost competitiveness, it’s affecting growth prospects — and the inflation outlook. So, we have to do a comprehensive assessment of the impact of the exchange rate on the European economy. Indeed, we have to closely monitor that, not least due to the reasons we discussed previously concerning central bank independence.

Q: We’re not currently at a level beyond which things would suddenly change in a nonlinear way, right? I’m thinking of earlier comments by Mr. De Guindos that after $1.20 you get into the danger zone.

A: I wouldn’t set any numerical threshold in either direction in this regard. Let’s stick to empirical analysis of how the exchange rate is affecting inflation and growth, as well as other economic variables.

Q: There have been some objections that the ECB’s meeting accounts depict the Governing Council meetings more dovishly than the press conferences lead observers to think. Do you see any contradiction here?

A: No. To my mind, the accounts reflect appropriately the discussions of the Governing Council, and I have not heard criticism of the account-keepers being biased in any way, and that’s good. That’s essential for the credibility of ECB decision-making.

Q: Turning to your bid for the ECB vice presidency, can you update us a bit and tell us how you see the role?

A: I have been contacted and encouraged from different parts of Europe to stand as candidate for vice president of the European Central Bank, and in these contacts my colleagues and friends have referred to my experience in European policy and financial stability, but also more broadly in European government. Europe is a rational passion for me, rational in the sense that I believe that for small states — and all European states are small — it’s essential that we are united. Only by working together can we ensure our external security and facilitate economic dynamism and social well-being of our citizens. And that’s very motivating. The role of the ECB vice president is perhaps like a midfield workhorse in football, which means that you have to work in both directions. You have to defend and support the attack. And every football team needs its Casemiro or Marco Tardelli. The vice president is essentially a team player, the left or right hand of the president, as Luis de Guindos has been with Christine Lagarde. In that sense, the work of the vice president is measured by the success of the whole European Central Bank. Of course, financial stability is the particular responsibility of the vice president in the division of labor of the ECB Executive Board, and I have some training in that regard. In this country, I was working as policy advisor for the prime minister when we had our banking crisis. It’s “never again”: be pre-emptive, maintain resilience. Then as European Commissioner I was contributing to the crisis management during the Eurozone crisis. More recently, I’ve been First Vice Chair of the European Systemic Risk Board, and a member of the high-level task force on banking system simplification. I trust this has given me reasonably strong background so that I could perform well the tasks of vice president.

Q: In terms of monetary philosophy, Madame Lagarde and Mr. De Guindos are philosophically perhaps not so far apart. What if you get a president who is far removed from you philosophically? How does that work?

A: I trust that we will be able to work well together with any possible president of the European Central Bank. The ECB is essentially a very collegial body, and we do teamwork. Christine Lagarde has been an excellent team-builder, among other qualities, and we currently have a very good working spirit on the Governing Council.

Q: What effect could the unexpected departure of Eurogroup Pascal Donohoe have on the outcome?

A: I’m not aware of any interconnection in this regard. I trust that the Eurogroup and ultimately the European Council will take decisions to the best of their ability and for the best of Europe and the ECB.

Q: On fiscal consolidation, if France did not manage to consolidate fiscally at the same time as Germany is spending a lot of money, wouldn’t that leave the ECB ultimately facing pro-cyclical risks?

A: I would say that risks would actually stem from the lack of credibility of debt sustainability in any country that is not on a sustainable path, be it Finland or France. In fact, at least the short-term impact of both these factors would mostly be to the growth outlook, and it would provide some short-term stimulus. And in the case of defense and investment, that is certainly a positive spillover for the European economy. In more general terms, in my view, common defense is now a very strong priority for Europe; indeed, it’s existential that we construct a stronger common defense of Europe as NATO’s European pillar. That’s going to be a key challenge in the coming years. It will also have economic implications and economic opportunities, for instance for the creation of safe assets, and thus for deeper and more liquid capital markets in Europe. I hope that we don’t miss these opportunities.

Q: Do you see any reason to worry about whether or not Germany is going to follow through on its commitment to spend money, with regard to defense but also to infrastructure?

A: No, I don’t. These are budgetary decisions, so they are legally grounded decisions now. So, I’m certain that these budgetary decisions will be executed effectively, and they will have a formidable positive impact on the European economy and the German economy.

Q: And this “formidable positive impact” is one of the reasons why you’re not overly concerned about the downside risks, because you’ve got this upside impulse that’s coming through starting next year?

A: That will be an empirical question, because, considering defense, it matters whether this defense spending is invested domestically, that is in Europe, or whether it will be directed externally, for instance to purchase U.S. armory. These have different fiscal multipliers and thus a different impact on economic growth.