“The European Central Bank needs to think carefully about how to deal with risks and uncertainty in an era of more volatile inflation and less clarity about the impact of monetary policy,” ECB President Christine Lagarde said.
“We will have to think about how our policy framework integrates risk assessments,” she said in a speech at the International Monetary Fund in Washington on Friday, referring to the ECB’s ongoing policy review.
Lagarde pointed out that the pandemic, the war in Ukraine and the energy crisis “have changed the structure of the economy and are challenging the way we assess the impact of monetary policy.” More supply-side shocks are widely expected in the future.
Lagarde also focused on the effects of global fragmentation and digitization on monetary transmission, although she assured that the ECB’s review would not discuss the 2% inflation target
The ECB wants to present the results of the review, which follows the one completed in 2021, in the second half of 2025. Although this time it will be less broad and the symmetric 2% inflation target is not up for discussion, it will however, it could have significant effects.
Executive Board member Isabel Schnabel said in April that the ECB should consider revising how it forecasts economic expansion and inflation to improve communication and respond quickly to shocks, warning that it could be dangerous to rely on a policy of publishing only basic forecasts.
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