speech monetary policy in the euro area : the next phase remarks for high - level panel “ high inflation and other challenges for monetary policy ” by philip r. lane, member of the executive board of the ecb, annual meeting 2022 of the central bank research association ( cebra ), barcelona barcelona, 29 august 2022 the period december 2021 to july 2022 constituted a distinct first phase in the normalisation of the monetary policy of the ecb. starting with the announcement that net purchases under the pandemic emergency programme ( pepp ) would conclude in march 2022 and followed by the curtailment and the eventual cessation of net purchases under the asset purchase programme ( app ) by the start of the third quarter, this phase was completed with the lifting of the key policy rates out of negative territory at the july meeting. this period saw a remarkable regime change in the behaviour of the euro area yield curve, with a very significant upward shift and an increase in volatility, as markets responded to the implications of the new inflation and cyclical environment for the future path for monetary policy, including the exit from “ lower bound ” monetary policy calibration. having completed this initial stage of monetary policy normalisation, our upcoming september monetary policy meeting will be the start of a new phase. our over - riding goal is to make sure that monetary policy will deliver the timely return of inflation to our medium - term two per cent target. in terms of execution, this new phase will consist of a meeting - by - meeting ( mbm ) approach to setting interest rates. at a basic level, the transition from rate forward guidance to the mbm approach is in line with our monetary policy strategy, which assessed that forward guidance was primarily an appropriate response to the lower bound constraint. as policy rates move away from the lower bound, the inherent flexibility of the mbm approach is better suited to calibrating monetary policy in a highly uncertain environment. since monetary policy works through its influence on the entire yield curve, it is important to appreciate that mbm monetary policy essentially has two elements. first, it allows for meeting - by - meeting reassessments of the conditionally - expected medium - term path for interest rates that is required to deliver the two per cent target, in line with the incoming data and evolving outlook. the terminal rate over the projection horizon widely used as a short - hand summary indicator for the orientation of interest rate policy. [ 1 ] it follows that a primary influence

from their peak in the summer of 2005, the inventory of unsold homes has risen substantially, and single - family housing starts have fallen by roughly one - third since the beginning of 2006. although a leveling - off of sales late last year suggested some stabilization of housing demand, the latest readings indicate a further stepdown in the first quarter. sales of new homes moved down to an appreciably lower level in february and march, and sales of existing homes have also come down on net since the beginning of this year. how will developments in the subprime market affect the evolution of the housing market? we know from data gathered under the home mortgage disclosure act that a significant share of new loans used to purchase homes in 2005 ( the most recent year for which these data are available ) were nonprime ( subprime or near - prime ). in addition, the share of securitized mortgages that are subprime climbed in 2005 and in the first half of 2006. the rise in subprime mortgage lending likely boosted home sales somewhat, and curbs on this lending are expected to be a source of some restraint on home purchases and residential investment in coming quarters. moreover, we are likely to see further increases in delinquencies and foreclosures this year and next as many adjustable - rate loans face interest - rate resets. all that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system. the vast majority of mortgages, including even subprime mortgages, continue to perform well. past gains in house prices have left most homeowners with significant amounts of home equity, and growth in jobs and incomes should help keep the financial obligations of most households manageable. conclusion credit market innovations have expanded opportunities for many households. markets can overshoot, but, ultimately, market forces also work to rein in excesses. for some, the self - correcting pullback may seem too late and too severe. but i believe that, in the long run, markets are better than regulators at allocating credit. we at the federal reserve will do all that we can to prevent fraud and abusive lending and to ensure that lenders employ sound underwriting practices and make effective disclosures