By David Barwick – FRANKFURT (Econostream) – The use of “vigilant” in recent European Central Bank communication should not be mistaken for the return of an old signaling device. The word has plainly become more applicable in a more dangerous inflation environment, and no one should pretend it is unrelated to current risks. But that is very different from conveying a policy intention.

In the ECB’s current communication framework, “vigilant” means alert, watchful and ready to respond to events. It does not function as a coded hint that a rate move is being prepared—even if the probability of a hike has recently increased.

Younger observers of the ECB—and perhaps even newer Governing Council members—may need reminding why the word deserves scrutiny at all. Under President Jean-Claude Trichet (2003-2011), the ECB at times relied on a stylized ladder of signals, progressing from “monitor closely” to “remain vigilant” and ultimately to “strong vigilance is warranted.” That final formulation indicated a high probability of imminent policy action.

In practice, that became a well-understood signaling regime. By the time Trichet at the March 2011 press conference twice stated that “[s]trong vigilance is warranted with a view to containing upside risks to price stability,” markets understood that as tantamount to an intention to change rates at the next opportunity—which the ECB then did in April.

That is history, and the system it belonged to no longer exists. Such a code works only if it is widely understood and repeatedly validated. Today’s ECB does not communicate that way.

Under President Christine Lagarde, the institution has instead stressed data-dependence, meeting-by-meeting decision-making and the avoidance of pre-commitment. When the word appears now, it appears inside that newer framework, not the old one.

For example, at a hearing of the Committee on Economic and Monetary Affairs of the European Parliament in June 2021, Lagarde said, “As the recovery is gathering pace, we need to remain vigilant.”

Yet no hike followed at the next meeting or the one after that; the first increase of the post-pandemic cycle came only in July 2022. That alone is enough to show that current use of the word does not automatically carry a near-term policy message.

The same is true deeper into the inflation cycle. In an interview with Nikkei in May 2023, Lagarde said, “we have to remain very vigilant” when asked about second-round effects. In her famous “last mile” speech in November 2023, Executive Board member Isabel Schnabel twice said that monetary policy needed to respond “with perseverance and vigilance,” adding that “[c]ontinued vigilance is therefore needed” and exhorting policymakers to “stay vigilant.”

None of this set the stage for an imminent move, and the ECB’s next rate change was a cut in June 2024. So even in a clearly monetary policy setting, “vigilant” had already become part of the ordinary vocabulary of risk management rather than a coded signal about the next meeting.

Examples of “vigilant” or a derivative thereof being used by ECB policymakers in an everyday sense abound, and the uses in recent weeks should not be overread. Yes, “vigilant” has cropped up repeatedly as the Iran conflict has complicated the inflation outlook.

But these references have come alongside language about staying calm, not rushing and waiting for more information. In other words, the term is being used in exactly the sense modern ECB communication would lead one to expect: heightened alertness in a volatile environment, not an encoded promise of near-term tightening.

Could some listeners still hear an echo of Trichet? Naturally. The word has a history, and anyone familiar with the old ECB may notice it. But echo is not signal. The old signaling regime was effective because it was current, repeated and widely understood. Today it is none of those things.

The ECB is plainly vigilant — and should be. But that is a statement about the risk environment, not about a decision already taken.

For a Governing Council that prides itself on data dependence, meeting-by-meeting judgment and no pre-commitment, pre-signaling a hike would already be unusual. Reviving a defunct code word to do so—one to which many observers attach no particular significance—would be more unusual still. And if the ECB intended to restore that old meaning, reviving it by stealth rather than acknowledging it openly would be bizarre.