JACKSON HOLE, Wyoming (AP) 鈥� Interest rates in the European Union will need to stay high 鈥渁s long as necessary鈥� to slow still-high inflation, Christine Lagarde, president of the European Central Bank, said Friday.
鈥淲hile progress is being made," she said, 鈥渢he fight against inflation is not yet won.鈥�
Lagarde鈥檚 remarks, at an annual conference of central bankers in Jackson Hole, Wyoming, came against the backdrop of the ECB's efforts to manage . The central bank has raised its benchmark rate from minus 0.5% to 3.75% in one year 鈥� the fastest such pace since the euro was launched in 1999.
The rate hikes have made it more expensive for consumers to borrow for the purchase a home or a car or for businesses to take out loans to expand and invest. Inflation in the 20 countries that use the euro has dropped from a peak of 10.6% last year to 5.3%, largely reflecting sharp drops in energy prices. But inflation still exceeds the ECB鈥檚 2% target.
Most of Lagarde's speech focused on disruptions to the global and European economies that might require higher rates for longer than was expected before the pandemic. Those challenges include the need to boost investment in renewable energy and address climate change, the rise in international trade barriers since the pandemic and the problems created by Russia's invasion of Ukraine.
鈥淚f we also face shocks that are larger and more common 鈥� like energy and geopolitical shocks 鈥� we could see firms passing on cost increases more consistently,鈥� Lagarde said.
Her address followed , who similarly said the Fed was prepared to further raise rates if growth in the United States remained too strong to cool inflation.
The double blow of still-high inflation and rising rates has pushed Europe's economy to the brink of recession, though it eked out a 0.3% expansion in the April-June quarter from the first three months of the year.
Lagarde has on whether the ECB would raise rates at its next meeting in September, though many analysts expect it to skip a rate hike because of the economy's weakness.
On Friday, most of her speech focused on whether longer-term economic changes will keep inflation pressures high. She noted, for example, that the shift away from fossil fuels is 鈥渓ikely to increase the size and frequency of energy supply shocks.鈥�
Lagarde said the ECB is seeking to develop more forward-looking approaches to its policy to manage the uncertainty created by these changes, rather than relying solely on 鈥渂ackward looking鈥� data.
Still, she reiterated her support for the ECB's 2% inflation target.
鈥淲e don't change the rules of the game halfway through,鈥� she said.
Christopher Rugaber, The Associated Press
