The European Central Bank (ECB) kept interest rates unchanged on Thursday, as widely expected, and refrained from signaling its next policy move, reinforcing market expectations that monetary policy will remain stable for some time. The relatively solid economic growth in the eurozone and inflation nearing the target level provide room for a "wait-and-see" policy stance.
At a press conference following the policy meeting, ECB President Christine Lagarde elaborated on the economic outlook, artificial intelligence (AI) investment, inflation risks, and exchange rates. Lagarde highlighted that AI investment is one of the "good news stories" for the European economy. She noted that while consumption has improved, investment stands out as a more prominent bright spot, particularly capital expenditure linked to the AI supply chain—including data center construction, licensing approvals, and software and hardware investments—which is driving significant spending.
Regarding the impact of AI on inflation, Lagarde emphasized that the key lies in whether it leads to a meaningful rise in productivity. If productivity improves, AI's upward pressure on inflation could be moderated, although this process will take time to materialize fully.
On fostering growth and productivity, Lagarde revealed she will send a letter to EU national leaders, the President of the European Commission, and the President of the European Council outlining a "checklist" of priorities. These include advancing a savings and investment union, developing a digital euro and tokenized wholesale central bank money, deepening the single market, promoting innovation while safeguarding strategic autonomy through openness, and simplifying legislation while strengthening institutional frameworks. She stressed that while the central bank can only fulfill its monetary policy mandate, unlocking Europe’s full potential requires deeper and faster structural reforms.
Commenting on former U.S. President Donald Trump’s nomination of Kevin Warsh as Federal Reserve Chair, Lagarde expressed her welcome, noting that she has known him since the global financial crisis and views the appointment positively.
On inflation, Lagarde stated that the current situation is "in a good place," with inflation levels generally favorable. She pointed out that underlying inflation indicators have changed little in recent months and remain consistent with the medium-term target of 2%. However, amid a highly volatile global policy environment, uncertainty around the inflation outlook remains elevated.
In terms of risk assessment, Lagarde described inflation risks as "broadly balanced." On one hand, persistently rising energy prices, further fragmentation of global supply chains, constraints on key raw material supplies, and planned defense and infrastructure spending could push inflation higher over the medium term. On the other hand, tariffs could dampen demand for eurozone exports, increased exports from countries with excess capacity, a stronger euro, and heightened financial market volatility could all exert downward pressure on demand and inflation.
Regarding exchange rates, Lagarde reiterated that the ECB does not target the exchange rate but closely monitors its impact on growth and inflation. She noted that since March 2025, the U.S. dollar has depreciated noticeably against the euro, and the effect of a stronger euro has been incorporated into the baseline forecast, though the central bank will continue to observe its pass-through effects.
On wages, Lagarde indicated that negotiated wage growth and forward-looking indicators suggest a continued slowdown in labor costs, though uncertainty remains about the impact of additional payments outside negotiated agreements on overall wage growth. Long-term inflation expectations are mostly anchored around 2%, supporting inflation stabilization around the target.
Looking ahead on economic growth, Lagarde stated that services remain the main driver, with information and communication sectors performing particularly well. Manufacturing has shown resilience amid global trade and geopolitical uncertainties, while construction momentum is also picking up. However, she also noted that higher tariffs and the euro’s appreciation over the past year continue to make the external environment challenging.