Indeed, balanced wage increases in line with these determinants would contribute to the lasting achievement of our medium-term inflation target and, also, to preventing the emergence of undesired second-round effects. 9  In the medium term, which is the relevant time frame for monetary policy, the expectation that inflation will moderate is maintained. Indeed, despite the evident short-run upward pressures on inflation, the most recent survey and market-based indicators keep pointing to a medium-term outlook for inflation rates in the euro area broadly in line with our 2% target. Wage growth also remains moderate. Against this backdrop, in recent months the probability of inflation stabilising at around 2% in the medium term has clearly increased but there is no perceived risk of it remaining persistently above that level at this stage. In any event, the outlook for inflation is admittedly highly uncertain. Geopolitical tensions could lead to further increases in energy prices, which could feed back into wage rises and an inflationary spiral. Other matters, such as the resolution of supply bottlenecks, are also subject to great uncertainty. All in all, the risks to inflation are on the upside, particularly in the near term. 10  I would also like to stress that the economic situation in the United States is different from that in the euro area. First, as I said before, medium-term inflation expectations in the euro area remain anchored at around our 2% target level, while in the United States these expectations lie significantly above 2%. US inflation numbers have also been higher.

The decline in the natural interest rate in recent decades means that, in order to stabilise inflation, real interest rates (and, therefore, nominal interest rates) need to be lower now than two or three decades ago. The problem is that nominal interest rates cannot drop significantly into negative territory, since highly negative interest rates would adversely affect the financial sector’s intermediation capacity, having a detrimental impact on the  1  For example, Holston et al. (2017) estimate that in 2016 the natural rate in the United States was positive but very close to zero. 3  supply of credit, economic activity and inflation. 2 Hence, there is a lower bound to nominal interest rates. This lower bound introduces an asymmetry into the conduct of monetary policy. This asymmetry means that monetary policy is potentially very effective in combating high inflation episodes, but less so in combating deflation or even persistently low inflation. 3  In the years that followed the Great Financial Crisis, in a context of significant disinflationary pressures, the proximity of interest rates to their lower bound led the ECB to introduce a set of non-standard measures to provide sufficient monetary stimulus to preserve price stability. Among these measures, the asset purchase programme (APP), the targeted longer-term refinancing operations (TLTROs) 4 and the forward guidance on the future path of interest rates can be highlighted. 2  See, for example, Brunnermeier and Koby (2018) for a discussion of the effect of interest rates on banks’ profitability and their ability to lend.