Europe | ECB makes way

Summary

The ECB's meeting held last Thursday put a lot of focus on issues that have little to do with monetary policy, which is symptomatic of the central bank's comfort with the current level of interest rates.

Key points

• Key points:
• The rate hikes through mid-2023 managed to moderate the sharp post-pandemic surge in inflation without triggering a recession (with the invaluable help of fiscal policy). Since then, rates have settled around 2% without de-anchoring inflation expectations.
• The European economy is growing close to its potential, and prices are rising by around 2%. Rates are likely to remain at these levels for a long time, unless conditions change.
• President Lagarde sounded relatively optimistic about eurozone growth. The 0.2% growth in the third quarter may seem modest, but it’s less so when we consider that in the first half of the year, growth was stronger than expected due to exports being brought forward to avoid tariffs.
• On inflation, Lagarde does not seem concerned about the slight acceleration since August because wage indicators point to moderation, but she did highlight the risk of bottlenecks linked to China's control of rare earths.
• Europe must now focus on achieving its medium- and long-term objectives: improving potential growth, correcting the alarming gaps with the United States and China on several fronts and establishing its strategic autonomy.

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