“Inflation will rise again.” Rates firm all the way down

The President of the ECB Christine Lagarde throw a second warning in a few days: inflation could rise again and rates will not fall as long as it remains above 2%. Statements that had in some way already been digested by the markets, which showed no shocks and closed modestly lower.

The economy is weak

During her quarterly hearing at the European Parliament, Lagarde confirmed that “economic activity of the euro area has stagnated in recent quarters and is likely to remain weak for the rest of the year“. The number one of the ECB then added that “while the medium-term prospects remain subdued, the economy is aimed at strengthening itself again in the years to come with inflation falling further, families' real incomes recovering and demand for the area's exports rising again.” So far the euro area labor market “has remained resilient overall – he added -. However there are some signs that employment growth may be losing momentum towards the end of the year”.

Watch out for inflation

The ECB – he assured – will continue to work so that “inflation returns to the medium-term objective of 2%”, but “this is not the time to claim victory”. “We have to stay alert to the different forces influencing inflation and firmly focused on our mandate of price stability”, reiterated the President, warning “we expect the weakening of inflationary pressures to continue, even if total inflation could rise slightly in the coming months“. The medium-term prospects – she then warned – remain subject to “considerable uncertainty”.

Rates high up to the inflation target

The president of the ECB then repeated the formula, adopted since September, in which the markets read a signal of achievement of the peak in rates officials. “We expect that keep rates at current levels long enough will make a significant contribution to the restoration of price stability”, he reiterated in a hearing at the European Parliament, reiterating the orientation towards taking on the future decisions based on evolving data. In this context he recalled that the ECB's economic forecasts will be updated at the Governing Council in mid-December, which for the first time will also include 2026

The Stability Pact is urgent

Lagarde finally spoke out “a little sceptical” on the simplicity of the rules that are being discussed for the revision of Stability pact and EU growth, according to the latest proposal drawn up by the Spanish presidency on duty of the EU. But answering questions on this topic during the quarterly hearing in the European Parliament, he repeatedly reiterated the need to reach an agreement on this revision of the rules “as soon as possible”. Also because, he explained, from the point of view of the ECB Governing Council this would eliminate uncertainty in monetary policy assessments regarding the scope within which governments must move in their decisions on budget policies.