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ECB official outlines diagnostic hurdles in setting monetary policy

Philip R. Lane said the ECB bases rate decisions on an inflation outlook, underlying inflation dynamics, and the strength of monetary policy transmission.

Reported · Written up by our desk · Central Banks

In a speech at the ECB Conference on Monetary Policy, Philip R. Lane discussed diagnostic challenges the central bank faces when deciding the appropriate level of ECB monetary policy.

Lane said the ECB’s interest rate decisions are guided by three criteria: its assessment of the inflation outlook and the risks around it using incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.

He said a key diagnostic task is separating and distilling the medium term component of the inflation outlook, especially as the economy is hit by multiple shocks that unfold over different time horizons.

Lane added that the ECB formulates its medium term outlook through an integrated assessment of all relevant factors, which is data dependent but not tied to any single data point or single causal narrative.

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