ECB’s Lane: Overall wage pressures have moderated since 2023

European Central Bank (ECB) Chief Economist Phillip Lane said on Monday that keeping rates overly restrictive for too long could push inflation below target over the medium term, per Reuters. “This would require corrective action that could even require having to descend to below-neutral,” Lane added.

Key takeaways

“The breadth of the domestic inflation dynamic is narrowing.”

“The bulk of the tightening impact on inflation is comparatively backloaded, with substantial pass-through still expected to transpire in the period ahead.”

“The ECB wage tracker is signalling that overall wage pressures have moderated since 2023.”

“It is straightforward that the calibration of the appropriate degree of restrictiveness should adjust for the impact of lower expected inflation.”

“Even if inflation does not smoothly decline during the rest of 2024, further disinflation can be expected in the course of 2025.”

“Easing the stance too quickly would not be consistent with inflation sustainably returning to target if inflation turns out to be more persistent than anticipated.”

Market reaction

These remarks failed to trigger a noticeable market reaction. At the time of press, EUR/USD was virtually unchanged on the day at 1.0848.