Highlight's of Lane's FT interview (1/2)

ECB's Lane clearly stated that there is more for the ECB in terms of raising rates in his interview with the FT, and also said that risks are likely to be tilted to the upside not just in the short-term but for the "next year or two". This suggests that the market's pricing of ECB cuts potentially from H2-23 (but more fully priced in 2024 is not aligned with Lane's current expectations:

• "The first phase for us was indeed to normalise monetary policy, to bring interest rates away from the lower bound towards something corresponding to neutral rates. We have done this. So, now we have the policy rate at around 2 per cent, which is in the “ballpark” of neutral.
• "Yet we are still not where the risks become more two-sided or symmetric. So, we need to raise rates more. Once we’ve made further progress, the risks will be more two-sided, where we will have to balance the risks of doing too much versus doing too little. This is not just an issue about the next meeting or the next couple of meetings, it’s going to be an issue for the next year or two."

Lane also made a distinction between the Eurozone and the US and noted that rates in the Eurozone don't need to be as high in the Eurozone.

• "The fact that we have a negative real income shock in Europe, which the US does not have, because it’s an energy exporter as well as an importer, means that the scale of monetary policy tightening needed to adjust inflation to target is smaller in the euro area than in the US. We both have a 2 per cent inflation target. But delivering 2 per cent means that interest rates will differ substantially between us and the US."