European Central Bank Chief Economist: The recent interest rate cut will help inflation return to 2%.

The Chief Economist of the European Central Bank, Philip Lane, said on Wednesday that the recent interest rate cut by the ECB will help inflation return to the target level of 2%. He stated, "This interest rate cut will help ensure that any downward deviation in inflation expectations over the next 18 months is temporary and does not turn into a prolonged deviation from the inflation target. This interest rate cut also helps eliminate uncertainty about our reaction mechanisms from external sources." The European Central Bank lowered interest rates by 25 basis points last Thursday, bringing the deposit rate to 2%. The ECB stated, "Current inflation rates are close to the 2% medium-term target set by the Governing Council." The statement specifically mentioned that the trade protectionist policies implemented by the Trump administration are putting short-term pressure on European business investments and exports, although increased defense and infrastructure investments by governments may provide support for economic growth in the medium to long term. Data released earlier this month showed that the eurozone inflation rate in May unexpectedly dropped to 1.9%, falling below 2% for the first time in 8 months, below the ECB's 2% policy target and economists' expectations of 2%, as well as below the previous value of 2.2%. Core inflation, excluding energy, food, tobacco, and alcohol, fell from 2.7% in April to 2.3% in May, and the service sector inflation, which is closely monitored, also significantly cooled from 4% last month to 3.2%. Against the backdrop of tariff impact, the eurozone's lower-than-expected inflation rate in May raised concerns about whether future inflation in the eurozone will significantly fall below 2%. While Fed officials worry that tariffs will lead to price increases, ECB officials are concerned about the impact of trade wars on suppressing inflation, as tariffs will curb European exports, and the strengthening euro against the dollar and weakened oil prices due to global economic slowdown are reasons why European inflation may continue to decline. Katharine Neiss, the Chief Economist of PGIM Fixed Income in Europe, previously pointed out that the ECB is transitioning from dealing with high inflation to a new phase filled with uncertainty, comparable to the COVID-19 pandemic and the Russia-Ukraine war, which means that the ECB must be vigilant against the dual risks of inflation fluctuating around the 2% target.