By Marta Vilar – MADRID (Econostream) – European Central Bank President Christine Lagarde said on Friday that the ECB was not yet seeing evidence that the latest energy shock was becoming embedded in the wider economy, and that the September rate hike had put policymakers in a good position to assess that risk.

Speaking in an interview with Irish broadcaster RTÉ Radio 1, Lagarde said the ECB was not reacting mechanically to higher energy prices, but rather to the risk that those increases could feed through into underlying inflation, employment costs and wage negotiations.

“We react to the risk that inflation becomes embedded,” she said. “Does it travel into the economy? Does it have an impact on employment cost, on wage negotiations? For the moment, we’re not seeing that.”

“But I think with that rate increase, we are in a good position to assess that risk of inflation becoming embedded in the economy,” she added.

Lagarde reiterated that future interest rate decisions would depend on incoming data, with the ECB assessing the inflation outlook, underlying inflation and the transmission of monetary policy into the economy.

“We will decide meeting by meeting what is appropriate, whether we should hold, we should hike, we should cut,” she said, adding that the latter was “very unlikely.”

The ECB could not directly address the source of higher energy prices, Lagarde said, but needed to anticipate their consequences for the broader economy.

“We have to signal to everyone we are damn serious about maintaining prices at 2%,” she said, noting that the ECB expected inflation to average 3% this year.

Lagarde also struck a relatively positive tone on the growth outlook. “Growth is a little more promising than we had thought,” she said, pointing to the ECB’s upward revision to its growth projections.

Employment was also “in a good place,” she said, with unemployment remaining low across most European countries.

However, Lagarde said stronger growth over time would require improvements in European competitiveness, while developments in artificial intelligence and technology could provide a boost to productivity.

“What is happening at the moment on the markets with artificial intelligence, with technology breaking through into our economies, is probably going to improve that productivity and it’s probably going to help with our competitiveness,” she said.

Lagarde said the ECB was monitoring the increase in global bond yields, particularly at the long end of the curve, and was seeking to understand the factors behind the move.

On government measures to cushion households from higher energy costs, Lagarde reiterated that support should be “targeted, temporary and tailored.”

Measures should be sufficiently targeted and temporary that they could be removed quickly once energy-price pressures eased, she said.

Asked whether she would leave the ECB presidency early, Lagarde confirmed she would depart in 2027, although she did not specify exactly when.

“What I can tell you at this point is that whatever the time, it will be handled in the most professional way, as it should be,” she said.