(Bloomberg) -- Excessive concern about possible future inflation shocks can be harmful to the economy, European Central Bank Executive Board member Piero Cipollone told Corriere della Sera in an interview.
Most Read from Bloomberg
-
NYC Condo Owners May Bear Costs of Landmark Green Building Law
-
NYC’s Subway Violence Deters Drive to Bring Workers Back to Office
“Keeping demand low in an attempt to safeguard against future inflation shocks, is in my view, today, counterproductive,” Cipollone said. “A further erosion of our economic potential would increase inflationary pressure, instead of reducing it.”
ECB policymakers are determining how quickly and how far to lower borrowing costs in 2025 after four quarter-point moves this cycle. With inflation now almost back at target, analysts reckon the deposit rate will be decreased to 2%, from 3% now, by mid-next year.
Some ECB policymakers however, worry about lowering rates too rapidly due to concerns about wage growth, profits and geopolitical tensions, including trade wars, which could push prices back up.
ECB policy “doesn’t need to excessively insure against possible future inflation shocks — it needs to try to push the economy to its potential without forcing, because that could increase inflation expectations,” Cipollone said.
ECB officials across the spectrum have signaled that they’re willing to bring borrowing costs to a neutral level that neither restricts nor stimulates economic activity. Yet they differ on where neutral is.
Executive Board member Isabel Schnabel has said the deposit rate – currently at 3% – is already approaching neutral while others, like France’s Francois Villeroy de Galhau, still see ample room for easing.
Cipollone believes erring on the side of caution is actually a risk.
“Keeping the economy under its potential weakens it and takes away space needed to react to shocks when they happen,” he said. “Having a higher speed limit, with real GDP growth that is coherent with its potential and salary growth coherent with productivity increases, helps absorb future problems on price dynamics with less stress.”
Most Read from Bloomberg Businessweek
-
The US Government Is Sitting on a Possible Solution to the Housing Crisis
-
Luxury Brands Need to Get Over Their Youth Fixation to Offset Drag From Trump’s Tariffs
-
Israel’s Wartime Farmers Are Relearning How to Plow Without GPS
©2025 Bloomberg L.P.