European Central Bank President Christine Lagarde said the bank will not sharply accelerate interest rate increases, favoring a moderate policy stance as the most prudent approach. She made the remarks at hearings in the European Parliament, tempering market expectations that had priced in as many as four hikes next year after two summer increases. Investors’ concern was sparked by inflation rising above 3% with a risk of climbing toward 4%, well above the bank’s 2% target. Lagarde stressed, however, that panic is unwarranted, and the ECB has the situation under control.
Lagarde identified the jump in energy prices driven by the US‑Iran conflict as the main source of price pressure. So far, the regulator has not observed dangerous second‑round effects: higher fuel costs have not translated into wage acceleration, and inflation has not become entrenched in the economy’s structure. The manufacturing sector remains stable, the labor market is holding up, and investment is supporting growth. For these reasons, the central bank views gradual, measured moves as the best means to curb prices without unduly weighing on businesses.
Economists expect the ECB to pause and skip the October 29 meeting, returning to the question of policy rates in December when fresh economic forecasts will be available. This cautious stance should allow European authorities to better assess the scale of the shock and avoid imposing excessive strain on the financial system.
