(Bloomberg) – European Central Bank President Christine Lagarde said inflation expectations must remain anchored and the public needs to know that price gains will be brought back on target.
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“Given this exceptional uncertainty, what we central bankers actually need to do is put monetary policy in place that anchors expectations so that those expectations stay anchored to the target,” she said in Bangkok on Friday. .
“We need to signal to the public, to observers, to commentators, that under all scenarios inflation will return to our medium-term target in due course. This is the best we can do in the current environment,” Lagarde told a conference hosted by the Bank of Thailand and the Bank for International Settlements.
All eyes are on the ECB’s last meeting of the year on December 14-15, when officials will decide whether to make a third consecutive 75 basis point interest rate hike or moderate the pace at half a point. Last month’s inflation provided grounds for a smaller move, slowing for the first time in 1 1/2 years.
Earlier this week, Lagarde said she would be surprised if price growth had peaked. Some of his ECB hawkish colleagues, meanwhile, have warned against a premature end to the campaign to regain control of inflation.
In Bangkok on Friday, Lagarde warned that the outlook will remain uncertain for some time. “We are going through a very, very difficult time where the ground is shifting under our feet,” she said.
Lagarde said the strong dollar had less impact on the euro zone than on emerging economies.
Attentive to FX
“Conventional wisdom will tell you that we are not targeting any exchange rate,” she said. “Obviously we are watching and being very attentive to the change in exchange rates and in particular we are watching carefully what has been an appreciation of the dollar.
Lagarde said that a temporary, targeted and adapted fiscal policy can play an important role in protecting Europe from the energy crisis.
“These three Ts can help smooth out energy shocks and limit inflation expectations,” she said. “Fiscal policies that create excess demand in supply constrained economies could force monetary policy to tighten more than necessary, and unfortunately for now at least some of the fiscal measures we are analyzing from many governments in the euro area point to the latter category rather than the former.
–With help from Andrew Langley and Michael Heath.
(Updates with more comments from the ECB President)
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