Bank of Finland Governor Olli Rehn told AFP that the European Central Bank does not need to take instructions from the US Federal Reserve and could start cutting interest rates as early as June.
“We don't set policy in a vacuum, but the ECB is not the 13th federal district of the Federal Reserve, which is divided into 12 regions,” Lane said.
“The Fed's actions do not determine the basis for the ECB to cut rates,” Lane said.
As inflation began to rise, the Fed reacted more quickly than the ECB, starting a series of interest rate hikes in March 2022.
After some initial hesitation, ECB policymakers followed suit in July of the same year, raising interest rates more quickly and significantly than ever before in eurozone history.
But with consumer prices coming off a boil, European policymakers may be poised to be first to start cutting borrowing costs when they next meet in June.
Lingering inflationary pressures in the US are forcing Fed policymakers to retreat from cutting rates again too quickly.
But a “downward trend” in inflation and “slowing wage growth” in the euro zone means there is a “strong case for initiating monetary easing and interest rate cuts in June,” Lane said.
– “Small deviation” –
“Then we'll see if this trend continues,” said Lane, one of 25 members of the ECB's Governing Council, which decides the direction of interest rates in the euro zone.
A further rate cut at the ECB's July meeting was far from a certainty for Mr Lane, who echoed what many of his colleagues had said.
“We have not committed in advance to any interest rate path,” Lane said, a view shared by European Central Bank President Christine Lagarde.
Regarding the Fed, Lane said observers should not pay “undue attention to the possibility of small deviations in monetary stance” from the ECB's own decisions.
Concerns have been expressed that if the euro zone were to cut interest rates first, it could weaken the euro against the dollar and lead to new inflation.
But the U.S. and eurozone economic cycles can't be completely in sync, “especially after the kind of extraordinary shocks we've experienced,” Lane said, caused by the coronavirus pandemic and Russia's invasion of Ukraine. He said this in reference to the confusion caused by the incident.
～Further investment～
But the widening gap in economic development between the United States and Europe is a “major concern,” Lane said.
The United States has outperformed the euro area for 25 years due to demographic advantages and significant productivity gains.
Price shocks caused by Russia's invasion of Ukraine in 2022 and reductions in gas supplies from the east also highlighted Europe's dependence on Moscow for energy imports.
“That's why green transition and digitalization initiatives are so important for Europe,” Lane said.
“We are very concerned about the lack of investment in Europe at the moment, which is hindering our competitiveness,” the central bank governor said.
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