(Finance) – “To manage uncertainty, we have introduced a monetary policy framework based on three elementsnot only on inflation forecasts but also on underlying inflation dynamics and the intensity of transmission. This framework has contributed significantly to calibrate the path of rates in the late phase of the rate hike cycle during which we kept rates at the maximum level and, more recently, at the start of the phase of monetary easing”. He said Christine LagardePresident of the European Central Bank (ECB), at an event in Washington DC organized by the International Monetary Fund.
“Our decisive monetary policy interventions have allowed us to keep inflation expectations anchored, which should return to 2% in the second half of next year,” he added. “Given the size of the inflation shock, this reabsorption is significant“.
“But the uncertainty that awaits us is still strong – said the number one from the ECB – The economy is currently undergoing a profound transformation, the impact of which must be analysed and understood”.
In a context of rapid and significant changes for the economy, “it is important to underline that the fundamental objectives of monetary policy should remain unchanged. Rather than forcing us to seek painful equilibria, as happened a century ago, our monetary policy strategies have proven effective, mitigating the trade-offs between inflation and employment”.
“If we enter an era in which inflation is more volatile and the transmission of monetary policy more uncertain, it will be essential to maintain this solid anchor for the price formation process,” Lagarde argued.