Headline: ECB's Villeroy: Monetary Policy Stays Ahead of the Curve

François Villeroy de Galhau, a member of the European Central Bank's Governing Council and Governor of the Bank of France, stated that the ECB's monetary policy is not currently trailing behind the curve, though the risks of overshooting or undershooting the inflation target are balanced. In a speech at New York University, Villeroy mentioned that "the persistence of inflation is no longer the sole and dominant risk" and that there is an equal risk of inflation falling below target, especially if growth remains subpar. Market expectations suggest that Eurozone inflation will be below 2% in 2025, while recent data showed inflation reaching 2% earlier in the year, contrary to the ECB's most recent macroeconomic projections.

Villeroy also noted that growth forecasts were revised downward in September. "So far, we can see the expected soft landing, but we do not yet see further takeoff," he said, highlighting that significant downside risks to both inflation and growth led to last week's rate cut. "For the near future, I advocate for agile pragmatism in further easing our restrictive stance," he said, emphasizing that "pragmatism means full optionality for each of our future meetings based on incoming data and forecasts. And agility: we are not behind the curve today, but agility should prevent us from such a risk in the future."

He warned that the risk of falling behind the curve could overshadow the risk of moving too quickly. "It's too early to say anything about our terminal rate. However, if we achieve a sustainable 2% inflation next year and the growth outlook in Europe remains weak, there will be no reason for our monetary policy to stay restrictive and for our interest rates to be above the neutral rate," he commented. Villeroy referenced the secondary objectives of the EU treaty, stating that "with victory over inflation in sight, monetary policy should not restrain growth and employment."