concept is even relevant. i am however a " r * believer ", and the ecb and the banque de france have ventured some estimates, using a series of semi - structural models. 3 / 4 bis - central bankers'speeches these estimates show that the pandemic marks a halt in the two - decade long downward drift in r * on the back of lower growth and population ageing. this might be good news for the economy in general, and monetary policy in particular : the risk of interest rates hitting the effective lower bound has slightly eased. our estimate suggests that in the euro area, the real neutral rate is now slightly positive, between 0 % and 0. 5 % ; and therefore the nominal neutral rate, adjusted for 2 % inflation, could be between 2 % and 2. 5 %. in the united states, it could be around one percentage point higher, taking into account the surplus of investment over savings, and stronger demographics and productivity gains. this 2 % to 2. 5 % range is a reasonable estimate of the average of ecb policy rates over a future full monetary cycle. however, this is not necessarily the target for the current rate - cutting phase : it simply shows that we have significant leeway to lower our rates before exiting restrictive territory. to sum it up, echoing henry james famous novel, the time for a " turn of the screw " on euro area monetary conditions is over ; now time is coming in europe to start to gradually " release the screw " and lower the pressure. thank you for your attention. 1 james, h., letter written in 1872. 2 lagarde, c., ecb press conference, 11 april 2024. 3 villeroy de galhau, f., " anatomy of a fall in inflation : from a successful first phase to the conditions for a controlled landing ", speech, 28 march 2024. 4 williams, j., " effective dialogue and well anchored inflation expectations : essential tools for navigating challenging times ", in central banking in the americas : lessons from two decades, bis, november 2023. 5 rapach, d., is the last mile more arduous?, federal reserve of atlanta, january 2024. 4 / 4 bis - central bankers'speeches

there are no signs of a wage - price spiral, which is important as wages are particularly relevant for services. on the contrary, average compensation per employee is slowing markedly. true, services disinflation can be slower, but not more arduous ; the last kilometer could differ in pace, but not in nature. 5 moreover, accepting that this last kilometer could naturally take longer may also provide protection against the risk of undershooting the inflation target, rather than remaining excessively tight to accelerate the process. this is why the time has come, in the euro area, to ease monetary restriction : following our governing council meeting last week, we should, barring major shocks or surprises, decide on a first rate cut at our next meeting on 6 june [ by the way, on the 80th anniversary of the d - day ]. i would then argue in favour of a policy of pragmatic and agile gradualism : there will have to be further cuts this year and next ; their pace will be guided by the data, in a genuine meeting - by - meeting approach. we do not have the same business cycle as the united states, with activity that is much less buoyant : the gradual easing of our monetary policy is therefore more evident, even though it should not be complacent. that said, we will monitor closely the geopolitical developments in the middle - east, and their possible spill - overs on energy prices. if ever these consequences happened to be lasting and propagating – i. e. affecting underlying inflation –, we would have ample room after the first rate cut to adjust the pace and the destination if needed, in the incoming monetary path : indeed, we'll anyway still be in restrictive territory for a while. iii. where could we end? is the neutral real rate ( r * ) helpful? last, where could we end? here the economic profession gets divided about the use of a concept dear to john williams, the neutral or equilibrium rate r * : the rate that balances supply and demand, and savings and investment as well. it is both an essential structural variable and a key cyclical marker : it is the dividing line between a restrictive and an accommodative monetary policy – if inflation is too high, interest rates have to go above r * to curb demand, and conversely. but the challenge is that r * is not observable and needs to be estimated : for this reason, some doubt whether the