ECB’s Lane says communication can move markets between rate decisions

ECB Executive Board member Philip Lane says the bank’s communication can move financial markets even when interest rates do not change, and argues that explaining how policy decisions are made helps investors interpret economic news.

In a speech in London on 10 November, Lane reviewed research on the effects of central-bank messages and described how the European Central Bank has adapted its approach. He said speeches and other communication between rate-setting meetings can affect interest-rate expectations across different maturities, influencing financing conditions and decisions on borrowing, saving and investment.

ECB research cited by Lane found that information in the bank’s monetary-policy statements can improve forecasts of euro-area core inflation several quarters ahead, even when staff projections are taken into account. The speech also says that unexpected shifts in communication can affect economic activity and inflation, though their effects tend to be smaller and slower to emerge than those of unexpected interest-rate decisions.

The ECB is also using large language models to analyse the tone of its communications. Lane said the tools can help researchers assess large volumes of text and identify shifts towards more hawkish or dovish language. But he cautioned that results depend on how models are prompted and trained, and require careful validation.

Explaining policy without promising a rate path

Lane distinguished between forward guidance, which signals the likely future course of interest rates, and “framework guidance”, which explains the factors policymakers assess. The ECB’s current framework sets out its focus on the inflation outlook, incoming data, underlying inflation, the strength of monetary-policy transmission and risks around the outlook.

Lane argued that this approach can help markets interpret new information without locking the ECB into a particular future rate path. He said research suggests rate expectations have become more sensitive to economic news under the current framework than during the period of explicit forward guidance. But he described that evidence as suggestive rather than conclusive, noting that economic conditions and uncertainty also changed between the periods.

The speech also highlights the challenge of reaching households and businesses. Lane cited research indicating that only around one in ten consumers encountered information about the ECB’s new inflation target in the months after it was announced. He said people’s attention to inflation varies with the economic environment, making clear explanations especially important when price pressures are high.

Lane’s remarks are his own and do not represent the collective view of the ECB Governing Council. The speech reviews research and the bank’s communication practice; it does not announce a change in interest rates. In