European Central Bank official Schipper warns: excessive vigilance against inflation may backfire, unlocking economic potential is the key!

European Central Bank Executive Committee member Piero Siboron stated in an interview that he believes the current strategy of preventing future inflation shocks by maintaining low demand is counterproductive. He emphasized that further weakening economic potential will actually increase inflationary pressures. Siboron's viewpoint provides a new perspective for the ECB's policy adjustments regarding lending costs in 2025. Siboron pointed out that the strategy of maintaining low demand to prevent inflation is actually counterproductive, as further squeezing economic potential will not alleviate inflation but instead exacerbate it. After four interest rate cuts of a quarter of a percentage point each this year, the ECB is carefully planning the speed and extent of interest rate cuts for 2025. Analysts predict that deposit rates may be lowered from the current 3% to 2% by mid-next year as inflation rates are close to returning to target levels. However, some ECB decision-makers are cautious about the pace of interest rate cuts due to concerns about wage growth, profit increases, and geopolitical tensions such as trade wars that could push up prices again. Siboron further explained that the ECB's policy should avoid excessive precaution against potential inflation risks and focus on promoting economic potential without external pressures, as forced intervention may worsen inflation expectations. However, there is a divergence of views within the ECB on the neutral interest rate level, which is the level at which lending costs neither suppress nor stimulate economic activity. Executive Committee member Isabel Schnabel believes that the current 3% deposit rate is close to neutral, while French representative Francois Ville-luva de Gallo and others believe there is still room for further easing. Siboron emphasized that excessive caution poses risks, as limiting economic potential will weaken the overall economy and deprive it of the cushion space to deal with future shocks. He advocates for adjusting economic growth restrictions to align actual GDP growth with economic potential and coordinate wage growth with productivity improvements to more effectively alleviate future pressures from price dynamics.