European Central Bank Chief Economist Philip Lane gave markets little reason to doubt that a rate hike is approaching next month. As investors increasingly price tighter policy following the Middle East energy shock, Lane signaled that policymakers are comfortable with those expectations, saying, “I don’t think the market needs some kind of extra guidance from us.”
His remarks add to a growing chorus inside the ECB arguing that the inflation consequences of the Iran conflict are becoming more persistent. Lane warned that “there are several factors related to the Iran war that show that the macroeconomic outlook has gotten worse,” while also acknowledging that oil prices are likely to remain elevated for longer than the ECB had projected in March.
Although stronger U.S. natural gas exports could help stabilize energy markets, he stressed that “on net” the impact has still been “upward pressure on inflation.”
Perhaps most importantly for markets, Lane confirmed that the ECB is preparing to raise its inflation forecasts again in June. “We are likely to make a further upward adjustment to the inflation forecast in June,” he said.
