The European Central Bank's chief economist, Philip Lane, is doubling down on interest rate increases even as economic conditions soften. Speaking on the bank's monetary policy stance, Lane made clear that bringing inflation down remains the top priority, even if it means accepting slower growth. The message signals that the ECB is prepared to keep tightening for longer than some had expected.
Why inflation still comes first
Lane's comments underline the ECB's resolve to stamp out price pressures that have lingered above target. Despite signs that the eurozone economy is losing momentum, the central bank is not ready to pivot. “We have to see the process through,” Lane said, according to a transcript of his remarks. The ECB has raised rates at every meeting since July 2022, and Lane's latest remarks suggest that run is not over.
The bank's own forecasts show inflation staying above 2% through next year. Lane argued that pausing now would risk undoing the progress made so far. The message is clear: the ECB is willing to accept a period of sluggish growth to ensure prices stabilize.
The price of tighter policy
That stance carries risks. Higher borrowing costs tend to dampen investment by companies and curb spending by households. The longer rates stay elevated, the more those effects compound. Some businesses are already pulling back on expansion plans, and consumer confidence has dipped in several eurozone countries.
Lane acknowledged the trade-off but said the ECB sees no alternative. If inflation becomes entrenched, he argued, the long-term cost would be even higher. The bank is betting that a controlled slowdown now is better than a deeper crisis later.
What comes next
Markets are now pricing in at least one more rate increase before the end of the year. The ECB's next policy meeting is scheduled for September, and another quarter-point move is widely expected. Lane did not specify the exact path, but his tone left little room for doubt: rates will keep rising until inflation is clearly defeated.
For now, households and businesses face an extended period of expensive credit. Whether the ECB can pull off a soft landing — cooling prices without tipping the economy into recession — remains the open question. Lane's remarks suggest the bank is willing to take that gamble.
