be mindful of the uncertainty surrounding our 3year inflation projections in the extraordinary context we are going through, especially when price pressures are originating from sector - specific supply constraints with moderate signs of contagion so far to wages. and there is one additional element, calendar based, introduced by the sequencing : any rate hike should only happen after date x, the end of the net asset purchases. we should not pre - empt this calendar : it is about the credibility of the sequencing, and also about some caution on the most fragile of our criteria – the medium - term forecastbased one. this brings me to a key reminder : the forward guidance never calls for an automatic decision, and always preserves our possible assessment. in our own wording, it is an “ expectation ”, and the governing council has to “ see ” and “ judge ” : even if and when the three criteria will be fulfilled, we could take into consideration exogenous or exceptional contingencies, including geopolitical ones. 4 / 5 bis central bankers'speeches one last optionality after lift - off would be about the pace of further rate hikes. in particular, some market participants anticipate a scenario where we could pause or adjust rates significantly more slowly after having exited from negative territory. this is not a preset course, but this would be a possibility as our hands here are completely free. besides optionality, necessary flexibility we should obviously keep optionality as we navigate this course. but we will also retain flexibility : to ensure not only the right stance of monetary policy, but also its right transmission throughout the euro area, in terms of asset classes and jurisdictions. optionality and flexibility strengthen each other in our path towards a smooth normalisation : on the one hand, gradualism will help to avoid possible markets overreactions ; on the other hand, we explicitly stressed the need for flexibility already in december, “ under stressed conditions, flexibility will remain an element of monetary policy whenever threats to monetary policy transmission jeopardizes the attainment of price stability ”. this is not a question of moral hazard or supporting any country unconditionally, still less about tolerating any form of fiscal dominance. it ’ s about avoiding risks of unwarranted fragmentation : having, if needed, in our “ virtual toolbox ”, some “ contingent option ”. it would work partly – but not necessarily solely – through pepp, including its reinvestments and possibly resuming its purchases

may account for this development. the answers to these questions will make it possible to assess the magnitude of risks to inflation and the capacity of the european economy to continue growing at close to its potential rate. inflation and monetary policy after several years in which globalisation fostered moderate inflation, inflationary pressures have appeared in the international environment. commodity prices, stimulated by strong growth in emerging markets, now appear on an upward trend. most of the world ’ s economies – including emerging market economies – are currently close to full utilisation of their production capacity. lastly, global liquidity, irrespective of the indicator used to measure it, is expanding strongly. against this backdrop, monetary policy has become more restrictive across all countries. since december 2004, key interest rates have risen from 2. 25 % to 5. 25 % in the united states, from 4. 75 % to 5. 75 % in the united kingdom and from 2. 00 % to 4. 00 % in the euro area. as regards the latter, the seven increases in interest rates implemented since december 2005 have, as mentioned above, been accompanied by strong gdp growth, and during this period monetary policy has ensured price stability at the same time as more than two million jobs were created. the ecb ’ s monetary policy stance has aimed, in accordance with the treaty, to maintain price stability over the long term. in sync with the consolidation of growth in the euro area, it has gradually been adjusted upwards, with the governing council striving consistently to calibrate interest rates as precisely as possible to allow growth to firm, while ensuring it is not jeopardised by mounting inflationary pressures. price stability is foremost among the objectives assigned to central banks in all countries. this is not a random choice. it is the fruit of experience. many countries have attempted, over recent decades – and particularly after the oil shocks at the end of the last century – to stimulate growth via expansive monetary policies. all of these attempts failed. inflation rose, sometimes to very high levels, without there being any improvement in employment. two lessons have been learned from this period, which still inform the conduct of monetary policy today. first, over the medium and long term, growth is determined by productivity, investment and the quantity of labour mobilised in the economy. at this time horizon, there is no trade - off between inflation and growth, and monetary policy is neutral with respect to output and employment. second, inflation itself is strongly influenced by