Cutting interest rates too soon in Europe risks progress against inflation, central bank chief says
European Central Bank head Christine Lagarde says cutting interest rates too soon could threaten Europe’s progress in battling the inflation that has ravaged the economy
FRANKFURT, Germany — Cutting interest rates too soon could threaten Europe’s progress in battling the inflation that has ravaged the economy, the head of the European Central Bank said Wednesday amid widespread speculation that the bank soon will lower rates from record highs.
Christine Lagarde, faced with market expectations for rate cuts as soon as March or April and a bank meeting next week, underlined the ECB’s intent to keep its benchmark rate high for “as long as necessary” until it’s clear that inflation is back to the goal of 2%.
Speaking at a Bloomberg News event during the World Economic Forum's annual meeting in Davos, Switzerland, she acknowledged concerns the bank had gone too high too fast with borrowing costs.
“I know some people argue that maybe we are overshooting, maybe we’re taking risks," Lagarde said.
But the bigger risk would be letting inflation get loose again and have to launch rate hikes again, she said.
Speculation that central banks including the ECB and the U.S. Federal Reserve are about to start cutting rates helped spark a surge in stock market indexes over the last weeks of 2023.
Lower rates boost business activity and can make conservative holdings such as bank deposits less attractive compared with riskier stocks. Stock prices have eased somewhat this year as the initial enthusiasm about possibly lower rates has faded and was tempered by worries about weak economic growth and geopolitical disruption such as the Israel-Hamas war.
Recent comments from senior Fed officials suggest that the central bank remains on track
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