In an interview with Ansa, European Central Bank Executive Board member Philip R. Lane said the energy shock remains the dominant factor in interest rate policy, while rising long-term yields will also shape the ECB’s assessment through their effects on growth and inflation. Energy prices are above the ECB’s baseline expectations, but limited second-round effects and uncertainty over broader pass-through mean current conditions cannot be mapped directly onto any single ECB scenario. Lane said higher long-term rates, particularly when driven by global rather than European factors, would slow the euro area economy and reduce inflation. The ECB will examine their impact on investment and employment alongside inflation and risk data. Economic activity has so far proved more resilient than initially feared, supported by fiscal measures, the final year of Next Generation EU investment and some AI-related investment, although fiscal support is expected to differ in 2027 and 2028. On fiscal policy, Lane argued that governments should target support at low-income households because broad expansion would add to demand and hinder inflation’s return to the 2% target. He also urged governments to incorporate higher long-term funding costs into multiyear budget planning and pursue reforms that raise economic growth.
European Central Bank Executive Board member Philip Lane identifies energy shock and long-term yields as key rate drivers
European Central Bank Executive Board member Philip R. Lane said the energy shock remains the main driver of interest rate policy, although uncertain pass-through limits conclusions from the ECB’s scenarios. Higher long-term yields could slow growth and inflation, while fiscal support should be targeted to avoid adding to price pressures.