ECB's Anti-Inflation Policy: A Balance Between Price Control and Economic Pain

The European Central Bank (ECB) has successfully brought inflation under control without incurring heavy economic costs, according to departing hawk and veteran Dutch policymaker, Klaas Knot. He believes the ECB would have taken "more pain" to tackle post-pandemic price rises if necessary. Knot's comments suggest that the ECB's approach to inflation has been effective without causing significant economic hardship.

The European Central Bank (ECB) has successfully managed to bring inflation under control without incurring significant economic costs, according to Klaas Knot, a departing hawk and veteran Dutch policymaker. Knot's comments suggest that the ECB's approach to inflation has been effective and balanced, avoiding the "more pain" that could have been necessary to tackle post-pandemic price rises [1].

Knot's assessment aligns with the ECB's recent monetary policy decisions. In a speech at the Barclays-CEPR Monetary Policy Forum 2025, Philip R. Lane, a member of the ECB's Executive Board, highlighted the ECB's approach to inflation control. Lane noted that the ECB's primary challenge was to return inflation to target in a timely manner, which required a rapid hiking cycle followed by a gradual reversal of the restrictive stance [2]. This approach ensured that inflation was brought under control without causing heavy economic costs.

The ECB's success in managing inflation is particularly notable given the volatile environment in which it has operated. Lane acknowledged the high uncertainty about the future of long-standing international trade systems, geopolitical tensions, and structural changes associated with the green transition. Despite these challenges, the ECB has remained data-dependent and taken a meeting-by-meeting approach to monetary policy decisions, ensuring that any temporary deviations from the target do not turn into longer-term deviations [2].

Knot's comments also reflect the ECB's commitment to ensuring that inflation returns to target in the medium term. By cutting rates by 25 basis points in June, the ECB demonstrated its determination to support the pricing pressure needed to generate target-consistent inflation. This decision was supported by model-based optimal policy simulations and an array of monetary policy feedback rules, indicating that it was appropriate under the baseline and remained robust across a range of alternative future paths for inflation and the economy [2].

In conclusion, the ECB's balanced approach to inflation management has been effective in bringing inflation under control without causing significant economic hardship. Knot's comments and the ECB's recent monetary policy decisions underscore the importance of a data-dependent and flexible approach to monetary policy in a volatile and uncertain environment.

References:
[1] https://coincentral.com/eu-to-approve-cross-border-stablecoin-fungibility-despite-ecb-warnings/
[2] https://www.ecb.europa.eu/press/key/date/2025/html/ecb.sp250624~6bc6bae5ac.en.html