Lagarde: No Recession In Our Baseline; PEPP Has Served Its Purpose

Q: Are you concerned ‘hanging on for too long’ when it comes to lowering rates? Do you think the current market pricing for six cuts in 2024 is reasonable?

• A: Who wants to hang on for too long? There will be more data coming in that we will take into account to determine when we can lower the guard. That’s where we are at the moment.
• A: I won’t address the second question directly. We will be looking at our three criterias to see whether we are going to reach out 2% target at the end of our projection horizon. We are more severe with ourselves - we are probably going to look closely at the end of 2025 (where we are at 2.1%).

Q: How much of a risk is a recession and how does that factor into your decision on interest rates? On PEPP you previously said flexibility for reinvestments was the first line of defence against fragmentation. Can you say whether fragmentation risk is no longer a worry?

• A: We do not have a recession in our baseline. Our mandate is not to cause a recession, it is to meet the medium-term inflation target of 2%. We take all the macroeconomic data into account, but we are driven by delivering on our mandate.
• A: On PEPP, don’t forget that as long as we reinvest we still have that flexibility. It was one of the attributes of PEPP. We believe that PEPP has served its purpose. It was intended for the pandemic. It was an emergency program. The pandemic is over.