Interest rates in the European Union will need to stay high “as long as necessary” to slow still-high inflation, Christine Lagarde, president of the European Central Bank, said Friday.
Most of Lagarde’s speech focused on disruptions to the global and European economies that might require higher rates for longer than was expected before the pandemic. Those challenges include the need to boost investment in renewable energy and address climate change, the rise in international trade barriers since the pandemic and the problems created by Russia’s invasion of Ukraine.
“If we also face shocks that are larger and more common — like energy and geopolitical shocks — we could see firms passing on cost increases more consistently,” Lagarde said., who said the Fed was prepared to further raise rates if growth in the United States remained too strong to cool inflation. The double blow of still-high inflation and rising rates has pushed Europe’s economy to the brink of recession, though it eked out a 0.3% expansion in the April-June quarter from the first three months of the year.
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