christine lagarde : imfc statement statement by ms christine lagarde, president of the european central bank, at the forty - second meeting of the international monetary and financial committee, virtual imf annual meetings, washington dc, 15 october 2020. * * * the coronavirus ( covid - 19 ) pandemic continues to be a truly global challenge. countries all around the world are facing severe human and economic consequences. in the euro area, we have taken decisive action to mitigate the impact of the crisis, both at the national and european levels. however, a global challenge of this nature also requires global solutions and strong international cooperation. at the global level, it will be crucial not to withdraw the policy support prematurely, including on both the monetary and fiscal sides, as reducing support too soon would risk delaying the economic rebound. at the same time, well - tailored structural measures facilitating the reallocation of resources over time to more viable sectors will be instrumental in minimising permanent damage to our economies and thus key for medium - term growth and the inflation outlook. euro area developments and outlook following the unprecedented fall in output in the first half of the year, economic indicators are pointing to a strong rebound in activity in the third quarter. this rebound is nevertheless uneven across sectors and regions, and a further sustained recovery remains highly dependent on how the pandemic will affect consumption, savings and investment decisions. while uncertainty about the path the pandemic will take is likely to dampen the strength of the recovery and affect the resilience of the labour market, the euro area economy will continue to be supported by very accommodative monetary and fiscal policies along with an expected gradual resumption in global activity. inflation has been in negative territory since august, largely reflecting the sharp decline in energy prices earlier this year and the mid - year temporary cut in german vat rates. these factors, combined with the impact of weak demand, downward pressure on wages and the euro ’ s appreciation weighted on inflation although there was also some upward pressure related to supply constraints. on the basis of current and futures prices for oil and taking into account the temporary reduction in the german vat rate, headline inflation is likely to remain negative over the coming months before turning positive again in early 2021. over the medium term, a recovery in demand, supported by accommodative monetary and fiscal policies, will put upward pressure on inflation. monetary policy since our last imfc meeting in april, the

##ling back " phase, until recently we retained a restrictive bias in our future policy orientation. at our last meeting, we dropped that bias. 1 / 7 bis - central bankers'speeches today, i would like to explain what motivated this change and what it implies for the future. in a nutshell, we have seen the environment change in three important ways that increase our confidence that inflation is returning to our target. these changes concern the path of inflation, the shocks driving inflation and the risks to inflation. the path of inflation the first important change relates to the path of inflation. in the earlier part of our monetary policy cycle, the path of inflation was characterised by high uncertainty. we consistently saw the return of inflation to target in our projections being pushed back. at the same time, the incoming inflation data were surprising on the upside, casting further doubt on the accuracy of those projections. ecb staff models using machine learning1 indicate that in 2022 and 2023 uncertainty around inflation forecasts was around four to five times higher than in the long - term average. this uncertainty about the inflation path had implications for the policy horizon – that is, the period within which we want to see inflation converging to our target. normally, the medium - term policy horizon is flexible and can be extended depending on the nature, size and persistence of the shocks. but if there is a risk of inflation expectations becoming de - anchored, the horizon must be shortened to the nearest possible date that monetary policy can take effect to prevent that risk materialising – which given normal transmission lags is around two years. with inflation rising and its return to target continually being pushed back, at a certain point we considered that the risk of de - anchoring had become too high. so, in september 2022 we introduced the notion that the return of inflation to our target had to be " timely ". our aim was to fix the policy horizon and thereby build confidence among the public that there would be no more delays. now, after a lengthy period of restrictive policy, our confidence that we are seeing a " timely " return to target has increased. since september last year, we have had six consecutive forecast rounds showing inflation returning to target in the course of 2025. and this arrival date has stayed constant even as we have drawn closer to it. the uncertainty around these projections has decreased significantly. our machine learning models now put the uncertainty bands at close to pre - pandemic levels. the incoming data have, over time