ECB made good progress on Inflation, but job not done, says Lane

ECB on Inflation: The European Central Bank is on course to bring inflation down to its target of 2 per cent, but the job is far from done, the bank's chief economist, Philip Lane, said. In prepared remarks during a discussion Saturday at the annual economic symposium of the U.S. Federal Reserve in Jackson Hole, Lane said that even if progress had been achieved, a restrictive monetary policy remained necessary.

The central bank cut interest rates for the first time in June after aggressively hiking them for quite a while. Now, with the next rate cut perhaps coming on September 12, which might see the deposit rate down at 3.5 per cent, a course of action is building inside the European Central Bank to slow growth enough to rein in inflation but not so much that it sends the euro area into another recession.

He said that ECB policies have worked so far, but it is not time to celebrate yet. The latest projections indicate that inflation is now unlikely to hit the 2 per cent target before the end of 2025.

"The path to our target is not yet secure," Lane said, underlining the need for tight monetary policy conditions to steer the disinflation process.

With concerns over the deteriorating growth outlook and labor market, some have joined the market in pricing further rate cuts in September December, and even October.

He also mentioned the risks of keeping policies too tight for too long, cautioning that doing so would finally choke off growth and hurt the labor market. "Keeping rates too high for too long could lead to chronically low inflation and inefficiencies in output and employment," he warned.