Christine Lagarde: Back to Basics in an Uncertain Environment

European Central Bank President Christine Lagarde argued that monetary policy has returned to interest rates as its primary tool, in a speech titled "Back to basics in an uncertain environment" delivered June 29 at the ECB Forum on Central Banking in Sintra, Portugal, per the text published by the ECB.

Per the speech, structural changes — including rising defence spending — have moved interest rates away from the effective lower bound, allowing the ECB to step back from the unconventional instruments that defined some fifteen years of crisis-era policy. Decisions are data-dependent and taken meeting by meeting, Lagarde said, with real-time indicators and scenario analysis replacing forward guidance; per the text, scenario analysis has become a core part of decision-making, testing policy robustness across different possible outcomes.

Lagarde distinguished what she called framework guidance — clarity about the ECB's reaction function that lets markets adjust conditions proactively — from the calendar-style forward guidance the bank has abandoned, arguing the former proves more valuable under high uncertainty, per the text. She also pointed to the ECB's investment in improved inflation projections and a suite of underlying inflation indicators for calibrating policy in real time.

On markets, Lagarde noted that the euro appreciated sharply against the dollar when the United States imposed tariffs in 2025, contrary to most predictions, per the speech — with markets in the immediate aftermath of the April 2025 announcement having priced a terminal rate as low as 1.5% before investors reassessed America's global financial position.

Background

The ECB Forum on Central Banking, held annually in Sintra since 2014, is the euro area's counterpart to the Federal Reserve's Jackson Hole symposium: a gathering where central bankers and academics debate the framework questions behind policy, and where presidential keynotes have historically carried signalling weight. Lagarde, president since November 2019, has presided over the full arc the speech describes — pandemic-era emergency purchases, the fastest hiking cycle in the euro's history to counter the 2022 inflation surge, and the subsequent descent of rates as inflation returned toward the 2% target.

The retreat from forward guidance reflects hard experience: pre-committed rate paths served the ECB poorly when inflation broke from forecasts in 2021-22, and major central banks have since converged on meeting-by-meeting, data-dependent language. The "back to basics" framing — rates as the workhorse, balance-sheet tools reserved for emergencies — describes a normalisation that the era of near-zero equilibrium rates had long denied European policymakers.

What comes next

The speech frames how the Governing Council will approach coming decisions: no pre-commitment, with scenario analysis and underlying inflation measures guiding each meeting. Watch the council's subsequent statements for the framework-guidance vocabulary Lagarde set out, and the Sintra proceedings for how the arguments — particularly on the euro's behaviour under US tariffs — are taken up in the forum's academic sessions.