After Fed's Jerome Powell, G7 Central Bank Chief Fires A 'Higher For Longer' Rate Warning: 'Inflation Fight Isn't Won Yet'

On Friday, European Central Bank President Christine Lagarde said at the Jackson Hole Summit that interest rates in the European Union will have to stay high as long as necessary.

What Happened: “While progress is being made, the inflation fight is not yet won,” Lagarde said, AP reported. She highlighted disruptions to the global and European economies that may require higher rates than previously expected before the COVID-19 pandemic.

Some of the challenges pointed to by the central bank chief included the need to boost investment in renewable energy, the rise in international trade barriers since the pandemic and the Russia-Ukraine war.

“If we also face shocks that are larger and more common — like energy and geopolitical shocks — we could see firms passing on cost increases more consistently,” Lagarde reportedly said.

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Why It's Important: The European Central Bank, much like its U.S. counterpart, the Federal Reserve, has taken interest rates from 0.5% to 3.75% in a year. This marked the fastest increase since the common currency, the euro, was launched in 1999, the report said.

The ECB has a medium-term inflation target of 2% and the euro area's inflation is currently well above this limit. The annual inflation rate was at 5.3% in July, final estimates released by Eurostat in mid-August showed. This was down from 5.5% in June and 8.9% in the same period last year.

That said, economic data, such as those on business activity, have continued to show weakness, raising questions regarding the central bank's hawkish stance.

Lagarde's views echoed an earlier speech by Fed Chair Jerome Powell, who said the U.S. central bank was prepared to raise interest rates further if growth remained too strong to allow inflation to cool off.

Read Next: Jerome Powell At Jackson Hole: Fed Is Ready To Raise Rates Further If Appropriate

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