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The European Central Bank is unlikely to revisit interest rate changes in the short term if current economic trends remain intact, according to its chief economist Philip Lane. He cautioned, however, that external shocks, particularly any unexpected shift in US monetary policy, could disrupt what is currently a relatively stable outlook.

The ECB has left interest rates unchanged since concluding a period of rapid rate cuts in June. Policymakers indicated last month that there is little appetite for further moves, pointing to resilient economic growth across the euro area and inflation appearing to settle close to the 2% target over the coming years.

One area of concern lies outside Europe. Ongoing political pressure in the United States to reduce borrowing costs more aggressively than the Federal Reserve considers appropriate could create knock-on effects. Mr Lane warned that if US inflation failed to return to target, or if tighter financial conditions in the US pushed up longer-term borrowing costs globally, the euro area could face challenges.

He also noted that any reassessment of the dollar’s future role in global markets could act as a financial shock for the euro. Such developments, he suggested, would become problematic if the Federal Reserve were seen to diverge from its mandate of supporting both price stability and maximum employment.

The euro strengthened notably against the dollar last year as investors reduced exposure to US assets amid policy uncertainty. While this supported the currency, it also weighed on European exporters, who are already under pressure from competitively priced imports from China.

Despite these risks, Mr Lane said he remains confident in the overall direction of US monetary policy and expects inflation in the euro zone to stabilise sustainably at 2%, in line with the ECB’s December projections. On that basis, he indicated there is no immediate discussion around changing interest rates, adding that the current policy stance is expected to remain the baseline for several years, although the ECB stands ready to respond if conditions shift.

Financial markets had briefly priced in the possibility of a rate increase in late 2026, but expectations have since moved towards rates remaining steady at around 2% throughout this year.

Looking ahead, Mr Lane suggested the 21-country euro area could experience a firmer cyclical recovery over the next two years. He also acknowledged that longer-term growth prospects remain subdued, arguing that deeper structural reforms will be required to unlock stronger potential growth.

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