Every atomic assertion extracted from the underlying record, ranked by evidence strength.
Isabel Schnabel argues that monetary policy should proceed gradually and remain data-dependent, given that interest rates are approaching neutral territory and risks to the inflation outlook are broadly balanced.
Once inflation is dominated by idiosyncratic shocks, central banks can tolerate moderate deviations from their inflation target in both directions.
Monetary policy is at a critical juncture.
The deposit facility rate is currently at 3%.
The ECB's Governing Council decided last week to cut the three key policy rates by 25 basis points.
Isabel Schnabel argues that challenges for monetary policy will change once price stability has been restored.
ECB staff project the euro area economy will expand around its potential growth rate in the coming years, leading to inflation neither materially over- nor undershooting the 2% target once past shocks unwind.
A gradual and data-dependent monetary policy approach aims to ensure disinflation does not stall above the 2% target and avoids unnecessary weakness in the labour market and the economy.
Growth has been revised down but is still expected to accelerate next year due to recovering consumption and investment, rising real incomes, and less restrictive financing conditions.
The negative effects of trade policy uncertainty on growth are often estimated to be short-lived, with growth rebounding sharply once uncertainty fades.
Services inflation remains high at 3.9%.
There was an upside surprise to growth in the third quarter, driven by picking up private consumption and inventories no longer weighing on growth.
A turnaround in the inventory cycle would remove a significant drag on aggregate demand.
Confidence in the retail trade sector and consumer expectations for major purchases improved in November, while savings intentions declined.
Inflation is expected to decline towards the 2% target in 2025 and oscillate around this level over the projection horizon.
Empirical research suggests that trade policy uncertainty, rather than actual tariff increases, is the main drag on growth.
Food prices started rising at a concerning pace, reaching an annualised three-month-on-three-month rate of 4.6% in November, up from 0.9% in May.
Recent sentiment indicators likely partially reflect the surge in trade policy uncertainty.
A decline in foreign demand for euro area goods and trade diversion, especially from China, are likely to be disinflationary.
Staff projections are consistent with bringing interest rates to a neutral setting as inflation sustainably stabilizes around the 2% target.
The ECB's decision last week to cut key policy rates by 25 basis points reflects the conviction that a gradual and data-dependent approach is the most appropriate strategy.
While confidence in achieving price stability is growing, an important part of disinflation has yet to materialize.
A gradual approach allows the ECB to respond to new shocks in an environment of elevated uncertainty and volatility.
Momentum indicators, such as the three-month-on-three-month rate, suggest that price pressures have started to ease.
Financial market participants estimate that, after correcting for potential shifts in seasonal adjustment, inflation momentum could be measurably higher than current official estimates.
November has been a notable outlier in month-on-month services inflation changes over the past two years.
The baseline scenario assumes a cyclical recovery in productivity growth, which is expected to ease unit labour cost growth.
Hysteresis effects or other structural factors could weigh on productivity and investment over an extended period.
ECB staff scenario analysis shows that if structural factors weigh on productivity, growth would be lower and inflation higher by 0.3 percentage points cumulatively by 2026 compared to the baseline.
Despite evidence pointing to continued disinflation, vigilance is needed for signs that cast doubt on the baseline forecast.
Wholesale electricity prices have increased substantially as a result of rising gas prices.
Gas prices have doubled since February.
New shocks are hitting the euro area economy, many posing upside risks to inflation.
A gradual monetary policy approach allows for reaction to signs that cast doubt on the baseline disinflation forecast.
The baseline forecast does not incorporate the potential impact of concrete policy measures from the new Trump administration due to uncertainty.
Climate mitigation measures are increasingly affecting prices over the medium term.
Eurosystem staff expect inflation to rise above 2% in 2027, mainly due to the planned expansion of the EU emissions trading system (ETS2) to buildings, road transport, and small industry.
The net effect of potential tariffs on inflation is often estimated to be positive, despite ambiguity in direction and persistence.
Model-based analyses suggest an economic expansion is much more probable than a recession over the next twelve months, despite potential trade barriers.
The EU may retaliate with its own tariffs, as it did in 2018.
Expansionary fiscal and supply-side policies in the US could support foreign demand, even with increased tariffs, due to short-run product non-substitutability.
The euro has depreciated by more than 6% against the US dollar since the end of September, largely in anticipation of the incoming US administration's economic policy intentions.
The euro's depreciation against the US dollar is already putting upward pressure on import prices.
Inflationary shocks are of particular concern because people are paying more attention to inflation after recent experiences.
The latest Eurobarometer reveals that inflation remains people's biggest concern in most euro area countries.
Heightened public attention makes inflation expectations more vulnerable after a long period of high inflation.
Incoming data and new Eurosystem staff projections confirm the disinflation process remains well on track.
A gradual approach is the most appropriate course of action as monetary policy approaches neutral territory.
A thick-modelling framework suggests that the median Taylor-type rule points to a gradual dialling back of policy restriction.
The distribution of projected interest rate outcomes is skewed to the upside according to the thick-modelling framework.
Recent ECB staff analysis estimates the natural real rate of interest (r*) to range from -0.5% to 1% in real terms, or 1.5% to 3% in nominal terms.
Estimates of the natural real rate of interest (r*) by ECB staff are similar to those by economists from the Bank for International Settlements.
Significant parameter uncertainty makes using the natural rate of interest (r*) as a monetary policy guidepost challenging.
An increase in real equilibrium rates would warrant a more cautious approach by central banks when removing policy restriction.
Changes in the demand for and supply of global savings suggest that equilibrium rates may have increased in recent years.
The pandemic, Russia's invasion of Ukraine, and other shocks have led to an increase in public debt globally.
Net borrowing by governments remains substantial.
The public deficit will be around 5% of GDP across advanced economies in 2024 and is expected to decline only marginally in coming years, reflecting borrowing requirements for digital and green transitions.
The IMF projects that overall global investment (public and private) will reach its highest share in GDP since the 1980s in the coming years.
Growing confidence in a sustainable decline of inflation towards the 2% target has allowed the ECB's Governing Council to remove substantial policy restriction over the past six months.