By David Barwick – FRANKFURT (Econostream) – European Central Bank Chief Economist Philip Lane said Monday that policymakers were assessing the Middle East energy shock in conditions materially different from those of 2022 and would respond without either hesitation or premature action.

In an interview on Irish radio RTE, Lane rejected the idea of a split within the Governing Council and said ECB President Christine Lagarde had already laid out “the full set of possibilities.”

Those amounted, he said, to three broad scenarios: no rate action if the situation reversed and weaker global activity or tighter financial conditions damped inflation; a middle scenario in which “some moderate interest rate increases will be needed”; and a severe scenario requiring something larger.

Lane said the euro area economy had shown momentum until late February, including “reasonably strong momentum in investment,” and that the war had hit against that backdrop. Even so, he described the conflict as “a big energy shock” with implications not only through energy itself, but also through spillovers to fertilizer and other essential inputs.

With respect to monetary policy, Lane stressed that the current backdrop differed from the one that produced the ECB’s last major tightening cycle. “2026 is not 2022,” he said. “We don’t have the strong pandemic reopening effects. The labor market is softer than it was then.”

“So, we will be looking at all of these considerations,” he said. “No paralysis, but no kind of preemption either.”

Lane said the ECB was already seeing the immediate effect of higher energy prices week by week, but that policymakers also had to assess the broader impact on the economy.

Recalling the earlier inflation episode, he said what mattered was whether the original energy shock began spreading “into price hikes across the economy,” adding that this was what the ECB wanted to be “vigilant against.”

He also said governments should shield lower-income households from higher energy prices in a “targeted, temporary” and “tailored” way, warning that broader support would inject demand into the economy and create an environment in which more firms believed they could push through price increases.