ECB moving in 'right direction' on inflation: Fmr. ECB Pres.

As growing uncertainty unfolds around the Federal Reserve's monetary policy path, the focus shifts across the Atlantic to the European Central Bank (ECB). The ECB has decided to hold interest rates steady, with deposit rates sitting at 4% for the fifth consecutive meeting. To provide insights on this decision, Former President of the European Central Bank Jean-Claude Trichet joins Yahoo Finance.

Trichet suggests that the ECB's message in holding rates steady is "pretty clear," believing the central bank is "going in a good direction" on its efforts to combat inflation and has not made any "pre-commitment" on rate cuts. He says this would have left the ECB "trapped in an overhaul of expectations" that a June rate cut would occur.

However, Trichet notes that the expectation of a June rate cut is "not a done deal," as there are many factors that could shift expectations in this "very... uncertain" environment. He emphasizes that the ECB's goal is to reach a 2% inflation target by 2025 and he is "confident" that the central bank is on the right course to achieve that.

Trichet also points out that while the US is also looking to move towards a 2% inflation target, Europe is closer to reaching that goal: "We are not as parallel... in the decreasing of inflation as we were perhaps before."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance.

This post was written by Angel Smith

Video transcript

- And the European Central Bank holding those rates steady for the fifth meeting in a row, maintaining that record 4% deposit rate. This comes as a survey conducted by the Central Bank showed that demand for credit continued to decline despite banks losing some of their strict-- and loosening their strict lending standards. Joining us now to react to the policy decision here, we have Jean-Claude Trichet, former European Central Bank president.

Thank you so much for joining us this morning. Talk to me about your reaction to not only the decision here, but also President Christine Lagarde's commentary.

JEAN-CLAUDE TRICHET: Well, thank you very much, first, to be with you. I would say that the message for me is pretty clear. First, we are going in the good direction, which was confirmed by the last figures that were encouraging, both for headline inflation and for core inflation.

Second, we do not want to be pre-committed. So she was trying not to be trapped in, I would say, an overall expectation that the first move down would be in the next meeting in June. So no pre-committing, no pre-commitment. But clearly, she didn't say, don't expect any move from now on. Clearly, we are in a situation where I would consider no more appropriate than the market would put a high degree of probability for a decrease of interest rates in the next meeting of the ECB.

But they were very clear, she was very clear, no pre-commitment. We don't take a commitment is [AUDIO OUT]

- Jean-Claude, is the cut in June, is that pretty much a done deal at this point do you think?

JEAN-CLAUDE TRICHET: No, I would say it's not a done deal because you will have new information. We are living in a world which is quite dangerous, obviously, and anything can happen. We have a world which is marked by geostrategic tensions, war in Europe, war in the Middle East, and expected difficulty also in Asia. So again, let's not forget that we are in a world which is likely-- very likely uncertain, if may. And after all, we are speaking of a meeting which will take place in several weeks time.

So I understand they are right and appropriate to say we are not pre-committed. But I have to say, looking at the figures in Europe, that I am personally quite confident that they are going in the right direction. The goal being to be around 2% in 2025, and particularly when I compare with the US, it's clear that now the European are really going to the target, which is the same in the US and in Europe.

In the US, it looks a little bit more complicated and more difficult. Obviously, there is a full 1% difference between headline inflation and core inflation on both sides of the Atlantic, which is something quite substantial. I have explanations for that, of course. But it means that we are not as parallel, if I may, in the decreasing of inflation as we were perhaps before.