ECB Isn’t Pre-Committing to a Particular Rate Path, Lane Says

The European Central Bank is taking a meeting-by-meeting approach for it’s next steps on monetary policy, according to Chief Economist Philip Lane.

“We are not pre-committing to a particular rate path,” Lane said at the Stanford Graduate School of Business on Thursday.

Speaking in a virtual guest lecture, he said that “a data-dependent and meeting-by-meeting approach is the best way to ensure that the calibration of monetary policy incorporates the multiple dimensions” of current uncertainty.

Policymakers have signaled that they will cut interest rates at their June 6 decision, though what happens after that is less clear. Some dovish officials have suggested back-to-back steps, while their more hawkish peers have warned of uncertainty and cautioned against hasty moves.

Lane acknowledge the fine balance required, saying that “there are two-sided risks in proceeding through the next phase.” 

Moving too soon or too fast wouldn’t be “consistent with inflation sustainably returning to target if inflation turns out to be more persistent than anticipated,” he said. 

Equally by keeping rates too high for too long, it could “push inflation below target over the medium term and incur excessive side effects in terms of sacrificed output, employment and investment,” and in turn “require corrective action through a subsequent acceleration.”

Data earlier this week revealed that the slowdown in euro-area inflation stalled in April, with the 2.4% pace matching that of the previous month. Still, gains in services prices eased to 3.7% after five months at 4%.

“Inflation has declined more quickly than we had expected,” Lane said. “The next phase of the disinflation process is likely to be more gradual, with bumps in the road ahead.”

The ECB expects “headline inflation to decline more slowly than it has done so far, largely on account of positive base effects,” he said. 

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