In today’s conference in Madrid, Pablo Hernandez de Cos, a member of the ECB Governing Council, emphasized the need for patience in the bank’s approach to interest rates.
De Cos pointed out, “If we keep rates at these levels long enough, there are very good chances that we will be able to reach our 2% target in a timely manner.”
De Cos added that a balanced approach was crucial “to avoid both insufficient tightening, which would impede the achievement of our inflation target, and excessive tightening, which would unnecessarily damage economic activity and employment.”
Echoing a similar sentiment, fellow Governing Council member Francois Villeroy de Galhau warned against an aggressive tightening stance. He said, “If the ECB tightens too much, the central bank could run the risk of having to rapidly reverse course.”
Villeroy de Galhau further advised against a reckless calibration of monetary policy, asserting, “‘testing until it breaks’ is not a sensible way.” Instead, he recommended a shift in focus from constantly elevating rates to maintaining a consistent policy. In his words, the emphasis should be on “duration rather than level.”