The ECB and Its Watchers XXII - Debate 1: Monetary Policy-From the Pandemic Crisis to New Challenges

Debate 1: Monetary Policy: From the Pandemic Crisis to New Challenges
Chair:
Volker Wieland (Institute for Monetary and Financial Stability)
Speakers:
Philip Lane (European Central Bank)
Stephanie Schmitt-Grohé (Columbia University)
Ricardo Reis (London School of Economics)
Lead questions:
Jörg Zeuner (Union Investment)
Dirk Schumacher (Natixis)
Michael Krause (University of Cologne)
Gertjan Vlieghe (Element Capital)
Slides are available on our website: www.ecbwatchers.eu
According to ECB chief economist Philip Lane, much of the underlying inflation in the euro area is a factor of high energy prices and will likely fade over time. "But instead of fading back to the pre-pandemic numbers, the projection is that inflation will fade back to the 2% target level," Lane said during the conference‘s first debate with a focus on new challenges in monetary policy.
In February, euro are inflation was 5.9% in February, almost three times the ECB’s target rate of 2%, and the fourth straight month in which the inflation rate hit a record high.
Comparing the impact of the recent global shocks on inflation in the U.S. and the euro area, Stephanie Schmitt-Grohé from Columbia University came to the conclusion that "a slower pace of raising interest rates is not being behind the curve." With inflation in the U.S. hitting a forty-year record high of 7.9% in February, Schmitt-Grohé observes a backlash against inflation in the U.S. "It makes us understand again that low inflation is something that society really values and that central banks have to defend that goal."
Ricardo Reis of the London School of Economics warned against a too hesitant approach. In his opinion, there are not various challenges but "essentially one challenge for the ECB that is inflation."