##ening demand since we began the ecb's rate hiking cycle in july 2022. we raised interest rates consistently to avoid sudden shifts in expected inflation and to constrain the propagation of the inflation shock through price - wage dynamics. subsequently, headline inflation in the euro area is now at 2. 4 % and projected to reach our target next year. underlying inflation, neutralised from energy and food prices, is still slightly higher at 2. 7 %, but it is likewise projected to reach our target next year. thanks to this disinflationary process, inflation is converging to our 2 % target in a sustained way, and the time is thus ripe in june to ease the monetary policy stance and start cutting rates. this obviously assumes that the disinflationary trend will continue and there will be no further setbacks in the geopolitical situation and energy prices. going forward, in the ecb governing council we will continue to follow a datadependent and meeting - by - meeting approach when determining the pertinent policy stance. we will set our rates based on our analysis of the inflation outlook, the dynamics of underlying inflation and the strength of monetary transmission. and we are not pre - committing to any rate path. with declining inflation and delayed economic growth, we are continuously assessing what our policy stance in this context should be. without prejudging our primary objective of price stability, we also need to avoid a stance that unduly delays the closing of the negative output gap. economic activity in the euro area, 2007 - 2026 ( slide 5 ) before concluding, let me next say a few words about exceptional uncertainty and how to deal with it in monetary policy decision - making. first, when projections include unusual risks, we should not rely solely on a baseline projection and fan charts around it, but also consider alternative scenarios, as stated by ben bernanke in his recent review of the bank of england's economic forecasting. our experience in the eurosystem demonstrates that scenarios are useful in analysing and communicating risks around the baseline during the times of exceptional shocks. second, it is important to use a wide variety of economic indicators. for example, using a range of measures for underlying inflation and wages has been very useful in assessing how broad - based current inflation is and how durable the disinflationary process is ( ecb ( 2021 ) ). third, the effect of uncertainty on policymaking should not be limited only

to our interpretation of economic data. one way to deal with uncertainty is to choose an appropriate degree of gradualism in policy decisions. according to the so - called " brainard principle " ( introduced in brainard 1967 ), increased uncertainty would warrant a more gradual response. 3 / 5 bis - central bankers'speeches there is a recent case in point on applying this principle. noting the accelerating inflation in the winter of 2021 - 2022, many of us policymakers would have been ready to raise the rates in march 2022. however, russia's illegal, brutal invasion to ukraine on 24 february 2022 both turned us back to the era of raw geopolitics and created a massive cloud of uncertainty over europe's economy. at least my initial assumption then was that it would probably have serious stagflationary consequences – i. e. both hitting growth and generating inflation, " back to the 70s ". in that context, it made sense to take a timeout and once the clouds had somewhat cleared choose the policy stance. – this context should be taken into account in all post - mortems of the recent polycrises years. more recently, however, some have argued for a strong policy response when there is a lot of uncertainty, especially about future inflation. 3 this can be seen as a risk management approach to policymaking, where we aim at guarding against the worst outcomes. for instance, during the recent inflation cycle, when inflation started to accelerate, it was important to unwind the accommodative monetary policy stance fast to guard against the danger of de - anchoring of inflation expectations. this guided us in the ecb governing council to decide on consistent rate hikes since july 2022. what can we conclude from the last two examples? judgment matters. in other words, while advances in economics have enabled us to gain a much better understanding of the macroeconomy and price dynamics, human judgment is still necessary especially in the critical moments when elevated uncertainty dominates and several options are open. in science we trust, but the art of monetary policy cannot still be replaced by artificial intelligence – at least in the foreseeable future! to summarize, uncertainties in price dynamics have indeed challenged our policymaking. the silver lining is that we have gained a lot of understanding about the appropriate policy responses in these circumstances. for me, this has above all highlighted the crucial role of inflation expectations in the making of monetary policy, as well as the