ECB’s de Cos warns of policy transmission strength and economic uncertainty

ECB Governing Council member Pablo Hernandez de Cos highlighted the surprising strength of monetary policy transmission and cautioned that this could lead to lower growth. Despite the current economic downturn, de Cos emphasized the need for ECB to remain vigilant to avoid the pitfalls of “insufficient tightening” and “unnecessarily harming activity and employment.”

De Cos described the current state of economic activity in Europe as showing “clear weakness,” with expectations of only a gradual increase in dynamism. He also highlighted that “risks to economic growth remain skewed to the downside,” pointing to geopolitical developments as a key factor.

Additionally, de Cos was surprised by the strength of the monetary policy’s impact, saying, “The transmission of monetary policy has been surprising us for its strength, which, if extended in the coming years, would translate into lower growth.”

Looking forward, de Cos emphasized the need for careful monitoring of various developments that could influence inflation and, consequently, ECB’s monetary policy actions. He asserted, “We’ll have to pay attention in the coming months to different developments that may condition the trajectory of inflation and, therefore, our monetary policy action.”