How the ECB Should Begin to Normalize Monetary Policy
The central bank needs some new tools to navigate the unique challenges that are likely to confront the euro-zone economy.
ECB President Christine Lagarde may have the toughest job in central banking.
Photographer: Alex Kraus/Bloomberg via Getty Images
The war in Ukraine has left Europe facing both greater supply chain disruptions and higher prices for raw material, problems exacerbated by the region’s dependency on Russia energy. Against this backdrop, the European Central Bank must find a way to guard against an extended inflation shock and economic slowdown, all the while rolling back support for financial markets in the midst of heightened turbulence in global bond and commodity markets.
Rather than a predetermined path of policy “normalization,” ECB President Christine Lagarde and her fellow policy makers need a new playbook to navigate the volatile period for growth, inflation and markets that lies ahead.