Speech by Isabel Schnabel, Member of the Executive Board of the ECB, at the Conference on Financial Stability and Monetary Policy in the honour of Charles Goodhart

London, 19 May 2023

Over the past years, we have seen a fundamental change in the macroeconomic environment.^[1] After years of low inflation and low interest rates, inflation has come back with a vengeance, reaching double-digit rates in some countries.

After some initial hesitation, central banks around the world have responded forcefully to the inflationary threat, leading to a rapid and broadly synchronised tightening of monetary policy across advanced and emerging economies (Slide 2, left-hand side). In the euro area, too, the pace of rate hikes has been unprecedented (Slide 2, right-hand side).

This rapid change has caught many by surprise. In December 2021, market participants still expected policy rates to remain in negative territory until the end of 2024, virtually unchanged relative to the end of 2019 (Slide 3)….