Lagarde speech: We're not seeing any second round effects yet

European Central Bank (ECB) President Christine Lagarde said on Wednesday that inflation has been rising predominantly but not exclusively as a result of energy prices. Lagarde added that she’s not seeing any second round effects yet.

Key quotes

Inflation has been rising predominantly but not exclusively as a result of energy prices.

We're not seeing any second round effects yet.

We cannot wait until they are in full view but we can anticipate, look for hints.

In Europe you see anticipation of wage increases through collective barganing arrangements, we're following those entry points.

Asked about French debt, the primary and first solution lies in French fiscal policy.

Growth is not brilliant, but 1.1% growth in 2026 is not bad.

Won't run for French president.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Market reaction

At the press time, the EUR/USD pair is up 0.06% on the day to trade at 1.1205.

Lagarde flags energy-led inflation but downplays second-round risks

ECB President Lagarde’s 4.6/10 FXS Speechtracker score sits notably below the historic 5.6/10 baseline, pointing to a mildly more cautious and less forceful tone than usual. By stressing that inflation is predominantly energy-driven and that second-round effects are not yet visible, while still warning the ECB cannot wait for them to be “in full view,” the speech leans slightly hawkish on vigilance but stops short of signaling aggressive tightening.

Lagarde’s focus on anticipated wage increases via collective bargaining and the need for French fiscal policy to address French debt underscores a preference for targeted vigilance and fiscal responsibility rather than broad-based monetary tightening. The acknowledgment that Euro area growth at 1.1% in 2026 is “not brilliant” but “not bad” reinforces a balanced stance, suggesting limited immediate impact on Euro direction, with markets likely to interpret the speech as watchful but not decisively hawkish.

ECB FAQs

What is the ECB and how does it influence the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

What is Quantitative Easing (QE) and how does it affect the Euro?

In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.

What is Quantitative tightening (QT) and how does it affect the Euro?

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.