Lane says pace of interest rate cuts still uncertain
ECB Chief Economist Philip Lane does not rule out the possibility of the central bank lowering interest rates by 50 basis points in the coming year. At the same time, however, he emphasises that the easing of monetary policy could also be slower than expected if inflation in 2025 turns out to be higher than forecast, for example due to trade barriers.
„In the world of uncertainty that we live in, it makes sense to decide, meeting by meeting, what the appropriate monetary policy stance is,“ Lane said during an 18 December MNI Webcast.
Many of the uncertainties are triggered by the upcoming transition of power in the White House on 20 January. Donald Trump's tariff policies could lead to inflationary pressure in the eurozone, via supply chain disruptions or a stronger dollar. On the other hand, economic growth in export-orientated Europe, in particular, could suffer significantly due to the Republican's likely restrictive US trade policy. This, in turn, is an argument in favour of lower inflationary pressure.
Wide range
The Bundesbank recently published model calculations for the impact of the planned US tariffs on inflation in Germany. Depending on the model, the calculated effect is an increase in inflation anywhere between 0.1 and 1.5 percentage points in 2025.
„It is not effective to invest a lot of effort in hypothetical scenarios,“ says Lane in response to a question about Trump's possible impact on economic data trends in the eurozone. It s better to wait and see what the future US administration actually implements.
According to Lane, the upside and downside risks for the ECB's latest inflation outlook are roughly balanced. The central bank expects inflation to average 2.1% in 2025. Regarding economic growth, the ECB estimates 0.8% for the coming year, not including possible US tariffs.
In this respect, the downside risk predominates in the economic projections. Nonetheless Lane does not harbour fears of a recession – even a mild one. „We are a long way away from this risk,“ said the ECB chief economist in response to a question.
