But one thing is certain: “We are not going to cut,” she said. “That is a definite no.”
The message came a day after the Federal Reserve raised interest rates a quarter-point, after holding them steady at the previous meeting.
Monetary policy tends to work its way through the economy slowly, which means that the impacts of past rate increases are only beginning to be strongly felt. This creates a challenge for policymakers, who want to be sure they have raised interest rates high enough to stamp out inflation but do not want to overdo their inflation-fighting efforts and cause unnecessary economic pain. Slowing the rate increases can give policymakers more time to see the reverberations of past increases, which is what the Fed has done.
The European Central Bank’s action on Thursday, its ninth consecutive rate increase, was warranted because inflation is “still expected to remain too high for too long,” Ms. Lagarde said.
But alongside concerns about the trajectory of inflation, Ms. Lagarde homed in on the economic outlook for the region, which she said was deteriorating in the near term. Part of the reason was that past rate increases were causing tighter lending conditions and declining demand for loans, she said.
The evidence has been accumulating: Consumer spending was being weighed down by high prices and tight credit conditions; the region’s manufacturing output was weak; housing and business investment were also showing signs of weakness; and the services sector, which has been the most resilient, was losing momentum.