ECB Policy Outlook

FRANKFURT (Reuters) – The European Central Bank (ECB) can ease policy further this year but must find a balance to avoid a recession while addressing inflation, ECB chief economist Philip Lane stated in an Austrian newspaper.

The ECB reduced interest rates four times last year, and markets anticipate four more cuts this year, mainly in the first half, as inflation is expected to reach the bank’s 2% target by mid-2025.

“If interest rates fall too quickly, it will be difficult to control services inflation,” Lane told Der Standard.

However, he also indicated that high rates for too long could weaken inflation momentum, risking falling below the 2% target.

A crucial factor for price growth control would be lowering services inflation, which has remained around 4% for most of 2024. Lane suggested that wage growth, a significant contributor to price pressures, will be “significantly” lower this year, further aiding the decline in inflation, recorded at 2.4% in December.

Lane noted that economic growth has been slightly above zero for much of the past year but did not perceive a significant recession risk necessitating drastic monetary easing.

A recession is not required to manage inflation, as the necessary conditions are largely in place already.

“This year, we need to find a balanced approach that is neither too aggressive nor too cautious in our actions,” Lane concluded.