Lagarde speech: Fiscal uncertainty could hurt confidence

Christine Lagarde, President of the European Central Bank (ECB), explains the ECB's decision to leave key rates unchanged at the October policy meeting and responds to questions from the press.

Key takeaways

"Incoming data suggests economy is expanding in Q3."

"Growth should be underpinned in the near term."

"Renewed energy price increases, financing costs hurt confidence, growth."

"AI investment, government spending should support growth, exports should pick up."

"Fiscal sustainability is the key anchor."

"Early stages of pricing chain point to upward pressure."

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"ECB wage tracker points to 2.5%-2.8% in remaining months of 2026."

"Most measures of longer-term inflation expectations stand at around 2%."

"Energy prices have increased beyond baseline."

"Energy will rise inflation further in the medium term."

"Headline inflation will likely remain well above target in coming quarters, thereafter decline in energy inflation should bring down headline inflation."

"Risks to growth are to the downside."

"Worsening of market sentiment could tighten financing conditions, dampen demand."

"Fiscal uncertainty could hurt confidence."

ECB FAQs

What is the ECB and how does it influence the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

What is Quantitative Easing (QE) and how does it affect the Euro?

In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.

What is Quantitative tightening (QT) and how does it affect the Euro?

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.