“Although global inflation is currently close to the target, service inflation still has a long way to go,” stated Lane today at a conference in London.
“Nonetheless, enough progress has been made in reducing inflation towards the [2%] target to consider this monetary policy challenge virtually complete,” he added, as quoted by Bloomberg.
This analysis by the ECB allows the institution to postpone further cuts to the key interest rates, now at 2.0%, following eight reductions since June 2024.
The outlook for the organization faces risks, given the impacts of U.S. tariffs and conflicts in the Middle East, with negotiations between the U.S. administration and the European Union (EU) having a deadline of July 9.
ECB President Christine Lagarde stated on Monday that with rates at current levels, the bank is well-positioned to handle uncertainty, acknowledging that tensions in the Middle East are a concern, given the potential for energy supply disruptions and price unrest.
Now, Lane noted that the task of disinflation has been replaced by a new set of challenges that must ensure the medium-term target is protected from factors including “high uncertainty” about the future of international trade, according to Bloomberg.
“I think volatility, in part, is related to policy uncertainty about the future of the international trade system,” he added, pointing to the possibility of a broader set of non-tariff barriers, a deeper intertwining of economic and security policies, and possible revisions to the treatment of foreign investors.
