ECB chief economist warns markets against pricing in rate cuts within the next two years

cnbc.com:

European Central Bank Chief Economist Philip Lane on Tuesday warned markets against pricing in cuts to interest rates within the next two years.

Earlier this month, the ECB hiked its main rate by 25 basis points to 3.5%, making the latest in a series of increases since July 2022, as policymakers strive to reel in record-high inflation in the euro zone.

Headline inflation across the bloc came in at an annual 6.1% in May, down from 7% the previous month. Core inflation, which excludes volatile food and energy prices, was 5.3% year on year. Both remained well above the ECB's 2% target.

Speaking to CNBC's Annette Weisbach at the Sintra central bank meeting in Portugal on Tuesday, the former Central Bank of Ireland governor said the euro zone economy is in an «adjustment phase,» as higher rates feed through and wages attempt to catch up with price increases.

«Where I do think the market should ask itself questions is about the timing or the speed of reversal of restrictive policy,» Lane said.

«We will not be back towards 2% for a couple of years. We will make good progress even this year, especially in the later part of the year, but it's not going to collapse to 2% within a few months.»

His comments echoed those of ECB President Christine Lagarde, who said in a keynote address Tuesday that the central bank had made «significant progress» but «cannot declare victory yet.»

The ECB has raised rates by 400 basis points since July 2022. Markets have priced in another 25 basis-point increase next month and are mulling a further hike in September, but some economists have speculated that the ECB may have to reverse its monetary tightening, as higher rates push the euro zone economy into reverse.

The U.S. Federal Reserve earlier