The European Central Bank published a Lamfalussy Lecture by President Christine Lagarde arguing that central bank independence remains indispensable to delivering price stability as advanced economies move from the “Great Moderation” into an era of higher and more frequent shocks. She contends that recent disinflation and firmly anchored inflation expectations after the latest inflation surge illustrate the value of independent monetary policy, even as political pressure increasingly challenges central banks’ de facto independence. Lagarde points to evidence that political influence can increase macroeconomic volatility and notes research suggesting de facto independence deteriorated for almost half of central banks in jurisdictions accounting for 75% of global GDP between 2018 and 2020, while around 10% of 118 central banks studied faced political pressure in an average year in the 2010s. In Europe, she highlights the post‑2022 rise in volatility following Russia’s invasion of Ukraine, with euro area output growth volatility up 60% and inflation volatility up 280% versus the pre‑crisis benchmark period. Against this backdrop, she cites OECD average inflation reaching 9.6% in 2022 and argues that policy rate increases by independent central banks contributed to a rapid fall and convergence in inflation paths, while trust in the ECB is associated with lower inflation expectations and reduced uncertainty.
European Central Bank 2025-01-27
European Central Bank President Lagarde defends central bank independence as essential for price stability in a more volatile world
European Central Bank President Christine Lagarde stressed the importance of central bank independence for price stability amid economic shocks. She warned that political influence can increase macroeconomic volatility and noted a decline in de facto independence for many central banks. Lagarde cited post-2022 volatility in Europe and argued that independent rate hikes have stabilized inflation expectations.