Lagarde Says ECB Expects to 'Lower Interest Rates Further'

The video discusses the return of inflation to target levels by 2025, with reduced uncertainty in projections. The current restrictive policy stance may lead to lower interest rates if data aligns with expectations. The future policy orientation is shifting from a restrictive bias to an appropriate stance, reflecting changes in the macroeconomic landscape. The recent Monetary Policy Statement by the Governing Council highlights this shift, moving away from coded language to a more transparent approach.

What has been the trend in inflation forecasts since September last year?

• Inflation forecasts have been highly uncertain.

• Inflation is expected to return to target by 2025.

• Inflation is expected to rise continuously.

• Inflation is expected to remain above target indefinitely.

How have machine learning models contributed to inflation projections?

• They have increased the uncertainty bands.

• They have had no impact on inflation projections.

• They have reduced the uncertainty bands to pre-pandemic levels.

• They have predicted a rise in inflation.

What is the current policy stance regarding interest rates?

• The policy is to increase interest rates.

• The policy is to maintain current interest rates.

• The policy is to lower interest rates if data confirms the baseline.

• The policy is to eliminate interest rates altogether.

What was the previous policy communication bias?

• To encourage rapid economic growth.

• To focus solely on employment rates.

• To keep policy sufficiently restrictive.

• To maintain a neutral policy stance.

What is the new focus of the policy stance?

• To prioritize only short-term economic gains.

• To ignore inflation risks.

• To maintain a highly restrictive policy.

• To deliver an appropriate policy stance.