(Bloomberg) -- The European Central Bank is nearing its consumer-price target but must remain alert to lingering dangers in some sectors, according to President Christine Lagarde.
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“We’re getting very close to that stage when we can declare that we have sustainably brought inflation to our medium-term 2%,” Lagarde said in an FT podcast released Monday. “I’m saying that with a little reservation because I still believe that we should be very vigilant about services.”
She noted that price gains in that industry remain almost twice the ECB’s goal, also urging policymakers to keep an eye on the trajectories of wages and corporate profits in the 20-nation euro zone.
The comments come at the end of a year in which Lagarde and her colleagues began unwinding their unprecedented monetary tightening. Economists expect them to cut the deposit rate four more times in 2025, adding to four moves in 2024 and bringing it to 2% by mid-year from 3% now.
Most officials prefer a “gradual” approach to loosening policy — something markets generally interpret as meaning 25 basis-point steps.
In a separate FT interview, Irish central-bank chief Gabriel Makhlouf said he continues to favor such increments over “big leaps.”
He said “insurance cuts” that preemptively lower borrowing costs in anticipation of a worsening economy due to trade tariffs aren’t appropriate and “may actually create a different problem.”
Discussing the so-called neutral rate of interest, an unobservable level that neither constricts nor stimulates economic output, Makhlouf warned that “people who are saying that it’s below 2% are probably ahead of themselves.”
Addressing trade, Lagarde reiterated concerns that the return of Donald Trump as US president could lead to damaging frictions.
“I said that retaliation was a bad approach because I think that overall trade restrictions followed by retaliation and this tit-for-tat, conflictual way of dealing with trade is just bad for the global economy at large,” she said. “And, you know, could turn out to be bad for the US economy, for that matter.”
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