Philip Lane, the chief economist of the European Central Bank (ECB), stated that there are no imminent recession risks that would necessitate a dramatic acceleration of interest rate cuts. He emphasized the importance of maintaining a balance that avoids triggering inflation while supporting economic growth.
Lane's comments come as the ECB is expected to ease its monetary policy further this year, seeking a middle ground that does not lead to recession or unnecessarily delays inflation control.
Last year, the ECB cut rates four times, with markets anticipating four more adjustments this year, primarily in the first half, as inflation trends toward the bank's 2% target around mid-2025.
Lane noted, “If rates decline too rapidly, it will be difficult to control service inflation.” He added that rates should not remain high for too long, as this could weaken inflation momentum and lead to inflation falling significantly below the target.
Controlling price increases hinges on reducing service inflation, which has lingered around 4% for much of 2024. However, wage growth, a significant factor in price pressure, is expected to be “significantly” lower this year, ensuring further inflation reduction from December’s 2.4%.
Despite the economy hovering just above zero growth for much of last year, Lane does not foresee recession risks that would require a dramatic acceleration of monetary easing. He asserted that recession is not necessary to manage inflation, as the conditions for curbing price increases are largely already in place.
“What we need to develop this year is a middle path, to be neither too aggressive nor too cautious in our measures,” Lane concluded.