Bank of France Governor Backs Cautious Economic Approach Amid Inflation Debate
Influential Bank of France Governor François Villeroy de Galhau lent his support on Thursday to a more cautious economic outlook, stating that “the balance of risks on growth and inflation is … shifting to the downside.” He added that the potential imposition of U.S. tariffs is unlikely to have a significant impact on the eurozone’s inflation trajectory.
The European Central Bank (ECB) had cut its benchmark interest rate by a quarter-point to 3.25 percent in October, a decision driven by unexpectedly weak economic data. However, ECB Executive Board member Fabio Panetta has advocated for a more forward-looking strategy, referred to as “directional guidance.” This approach would incorporate risks to the broader economy and aim to prevent abrupt rate adjustments, fostering deeper confidence among businesses and households.
Yet, Panetta’s proposal has sparked controversy. Many of his ECB colleagues are reluctant to shift away from existing policies that they deem effective. “The flexibility we have applied in navigating the challenges of the past few years will remain crucial in years to come,” remarked board member Frank Elderson on Thursday.
Furthermore, concerns remain high within the ECB’s Governing Council that the central bank’s primary mission—controlling inflation—is far from complete. The prospect of a second Trump administration igniting fresh trade disputes and heightened protectionist measures has only added to these anxieties.
Austria’s Robert Holzmann dismissed Panetta’s inflation concerns in an interview with PLACEHOLDER0e46f2281e4b139d on Thursday, saying predictions of an inflation undershoot “aren’t warranted.” Holzmann pointed to various geopolitical risks, including ongoing global conflicts and trade tensions, as well as recent wage trends. Wages for three-quarters of eurozone workers saw their fastest annual growth rate in three decades during the third quarter. Although analysts—and the PLACEHOLDERe015adb8fc1729c9—predict a cooling in wage growth going forward, the momentum remains a concern for inflation hawks.
Given the uncertainty surrounding how and when former U.S. President Donald Trump might implement protectionist measures, Cypriot central bank governor Christodoulos Patsalides urged a measured approach. Speaking at a panel in Nicosia, he emphasized that a “gradual and careful approach is the most appropriate” for navigating the current economic landscape. His comments align with the ECB’s broader consensus, which remains more cautious than Panetta’s proposals.
Uncertainty Principle in Policy-Making
As the ECB continues to weigh competing priorities—supporting growth while keeping inflation under control—the disagreement over how to move forward highlights the challenges of managing monetary policy in an increasingly uncertain global environment.
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