European Central Bank Governing Council member Gabriel Makhlouf said on Tuesday that uncertainty is weighing heavily on investment, with soft data indicating a marked cooling in both business and consumer sentiment. He noted that global economic integration is now stalled, if not reversing, with recent weeks showing an acceleration in the pace and scale of change. Makhlouf cautioned that even a short-lived trade war would leave persistent uncertainty effects.
The official also stressed that monetary policy must adapt to the new nature of supply shocks generated by geoeconomic fragmentation, which are larger, more persistent, and have significant impacts on prices. These conditions require carefully calibrated policy responses, Makhlouf added and emphasised the need for forceful and persistent actions to prevent inflation expectations from de-anchoring, both to the upside and downside.
He also reiterated that interest rates remain the default policy tool, but when constrained by the lower bound, targeted lending and balance sheet operations remain valuable instruments.