Christine Lagarde, President of the European Central Bank (ECB), and Kevin Warsh, the newly appointed Chair of the Federal Reserve (Fed), spoke today on rates and inflation at the forum organized by the ECB, which convenes every summer in Sintra, Portugal.
ECB Sintra forum: Lagarde defends rate hike. Warsh confirms: no forward guidance
Lagarde defended the rate hike announced by the ECB on June 11 — the first monetary tightening in the euro area since September 2023 — while the head of the American central bank reiterated the need for the Fed to usher in a new era, confirming his firm opposition to forward guidance:
«We will start a new phase, so that we can make better decisions,» Warsh said. He made the remark following his announcement, at the close of the most recent FOMC meeting — his first in the role of Fed Chair — of the intention to create five task forces to launch a deep review of the Fed’s operating model.
«There is a lot of data,» Warsh said, and «my desire is for a heated debate at the next meeting. We will not provide forward guidance.»
Warsh: inflation still too high. Lagarde: we won’t let the genie out of the bottle
The Fed Chair gave no guidance on the direction of rates, but acknowledged that US inflation remains too high, while remaining open to the possibility that AI could eventually generate disinflationary effects:
«We are all committed to price stability. It may not be our only mandate, but if there is one common thread I have picked up in recent days, it is open-mindedness toward AI-related topics, open-mindedness toward productivity. However, all of us looking around see that prices are still too high.»
On inflation, ECB President Lagarde was equally direct, saying the ECB found itself in June with «a perfect outlook to raise rates.»
She acknowledged that «risks are now more broadly balanced than they were a few weeks ago,» but was firm that «we are not in a stagflation environment.»
Lagarde’s resolve left no room for ambiguity:
«We will not allow the inflation genie to escape from the bottle.»
ECB, Lagarde: when inflation is rising, the decision on rates is obvious
Lagarde continued to defend the decision’s logic with unusual directness:
«When you have an outlook for inflation that is rising, a core inflation that is rising, and when you have underlying inflation that is also signaling an upward trend, and when the objective is to return to 2% by end of 2028, the decision on rates is obvious. So obvious that it was voted unanimously within the Governing Council.»
Turning to Warsh, the Fed Chair dwelt on the implications of AI for monetary policy, noting that «the AI shock is translating into a boom in capital expenditure.»
The phenomenon, he added, «we are seeing first and foremost on the demand side, but I’m confident that at some point we will also see it on the supply side. We are spending most of our time monitoring these developments.»
Asked by Sara Eisen of CNBC whether AI might drive inflation higher, Warsh was careful not to commit. He did note, however, that this is a preferable challenge compared to what happened «years ago,» when companies leaned on «financial engineering» and stock buybacks to sustain growth.
«Right now, companies are investing in the future because they expect the supply side of the economy to expand and, if that happens, the implications for monetary policy will be enormous. But, again, I’m not going to pass judgment on that now.»
In any case, «it will fall to the central bank to decide whether AI is inflationary,» in a context where «the United States will probably be a big winner» in this sector.
Fed, Warsh reaffirms 2% target: «We will be an independent central bank»
Despite acknowledging that inflation remains too high, Warsh signaled that «inflation expectations have come down,» making clear the Fed will act to deliver «price stability, moving toward the 2% target.»
Against concerns that under his leadership the US central bank would bow to President Donald Trump’s preferences, Warsh was unequivocal: «We will be an independent central bank.»
«If communication is an obstacle, we will get rid of it,» he added.
Warsh reiterated that «interest rates are the dominant means through which we should make monetary policy decisions,» observing that, on the market side, «volatility and yields have come down.»
He concluded by noting that the leaders of the five task forces will be announced next week. «We will have the best minds from inside and outside the United States,» he assured.
Editor’s note
This article was originally published in Italian on money.it by Laura Naka Antonelli on July 01, 2026 as «Forum BCE a Sintra, cosa hanno detto Lagarde e Warsh (Fed) su tassi e inflazione». It has been translated and adapted for an international audience by the Money.it International desk.
