ECB, Fed still cautious about rates and inflation

BERLIN/WASHINGTON

European Central Bank chief Christine Lagarde has said that it was not time to "start declaring victory" in the fight against inflation, warning that policymakers could act again if needed.

The ECB held its key interest rates steady at its last meeting in October, after 10 straight increases aimed at bringing runaway consumer price rises under control.

Inflation in the 20 countries that use the euro slowed to 2.9 percent in October, not far off the ECB's two-percent target, while the eurozone's economic outlook is darkening.

Speaking at an event in Berlin, Lagarde acknowledged that inflation has "gone down significantly."

But the ECB president described the central bank as "attentive", and it expected inflation to tick up again in coming months.

"It is not time yet to start declaring victory," she said.

"We can act again if we see rising risks of missing our inflation target."

She reiterated that rates were at levels that "maintained for a sufficiently long duration, will make a substantial contribution to returning inflation to our medium-term target in a timely manner."

However, "the journey is not over, and we still have to complete that journey," she said.

 ‘Rates to stay high’

Meanwhile, all members of the U.S. Federal Reserve's powerful rate-setting committee judged earlier this month that it would be appropriate to keep interest rates high "for some time" in order to tackle inflation, minutes of the meeting released on Nov. 21 show.

On Nov. 1, the Fed announced it was holding interest rates at a 22-year high for a second straight meeting, as it looks to bring inflation firmly down to its long-term target of two percent without damaging the strong economy.

The Fed's move raised traders' expectations that it is done hiking interest rates and is moving into a prolonged pause - although Fed Chair Jerome Powell has since said the U.S. central bank is prepared to hike interest rates again, if needed.

"All participants judged that it would be appropriate for policy to remain at a restrictive stance for some time until inflation is clearly moving down sustainably," towards its two percent target, the Fed said in minutes of the meeting.

Despite the Fed's decision to aggressively tighten monetary policy since March last year, economic growth has remained strong and the labor market has fairly buoyant - although it has shown some recent signs of slowing.

The strong recent economic data has increased the likelihood of a so-called "soft landing," whereby the Fed succeeds in tackling inflation without plunging the United States into recession.