positive deviations from the 2 % target to be equally undesirable. [ slide # 7 dramatic shift in operational environment – inflation surge ] after the completion of our strategy review, the speed of change in the operating environment has been accelerating. it was still less than a year ago, i recall, that some commentators were sceptical about whether the eurozone would ever pull away from the low - inflation era – there was talk about “ japanification ”. we don ’ t hear such talk too much anymore! in the current context, the risk of deflation has vanished, but we face another challenge in preventing inflation expectations from becoming de - anchored. indicators of underlying core inflation have been rising rapidly this year, and inflation expectations have been shifting upwards. that is why the ecb ’ s first interest rate hike in over a decade will take place soon. and that was indeed the message we conveyed after the ecb monetary policy meeting on june 9th. the end of net purchases under the ecb ’ s app asset purchase programme on july 1st paves the way for a rate lift - off at our next rate - setting meeting in july, in line with our forward guidance. based on the current outlook, we are likely to be able to exit negative territory in interest rates by the end of the third quarter. in our policy analysis, we need to be mindful of the pervasive uncertainty surrounding the global economy. supply shocks that are raising inflation and slowing growth do call for a well calibrated policy normalisation. monetary policy cannot do much about rising energy prices, but it can influence inflation expectations to stay anchored around the target. that is, we – the central banks – have the means to maintain price stability, and as shown earlier this week by the fed, we clearly have the will to do so. before concluding, let me briefly comment on the risk of financial fragmentation in the eurozone. flexibility in the conduct of asset purchases has helped us counter any impaired transmission of monetary policy. this was demonstrated by the pepp programme during the pandemic. and flexibility will firmly remain in our policy toolbox. the reinvestment capacity that we have under the pepp today totals 1. 7 trillion euros. as decided by the governing council on wednesday, it will be reinvested in a flexible manner across time, across jurisdictions, and across products. moreover, we decided to accelerate the completion of the design of a new antifragmentation instrument for consideration by the governing

governor olli rehn : monetary policy at a crossroads, policy panel at the dallas fed conference 18 june 2022 saturday 18 june 2022, 11 : 40 pm governor olli rehn, bank of finland policy panel at the dallas fed conference, 18 june 2022 monetary policy at a crossroads dear colleagues, ladies and gentlemen, it is my honour and great pleasure to be with you here in dallas today. to the organisers, many thanks for the invitation to join the conference and this panel, the themes of which are most topical. it is indeed pertinent to explore central banks ’ recent reviews of their monetary policy frameworks and how monetary policy has passed the tests of recent crises, including the covid - 19 pandemic and russia ’ s war in ukraine. i should say that i am here in my capacity as a member of the governing council of the european central bank, and so the views i express are built on this experience. i should also add that i am speaking as a member of the governing council rather than on its behalf. monetary policymakers are currently facing challenges that seemed quite unlikely or distant even just a year ago. after a long decade of low inflation, we moved last year very quickly to a period of very high inflation. this challenges our analyses and our thinking in various ways. recently, there has been much talk about a ’ regime change ’ in monetary policy. dictionaries typically define regime change as “ a persistent change in the structure and function of a system ”. for political scientists, it has a very specific meaning, i. e. a profound change or replacement of one government regime with another, referring to the nature of the political system, be it democracy, autocracy versus tyranny for plato, or principality versus republican government ( ‘ r ’ in lower case ) for machiavelli. so, while there is no doubt that monetary policy is at a crossroads today, we should ask if it really is about a monetary policy regime change. i doubt that. instead, the ongoing policy normalisation is a response to the rapidly, even dramatically changed inflation outlook. as to the ecb, our strategy and monetary policy framework was reviewed and revised a year ago, in july 2021, and the revised strategy remains valid : we are determined to deliver on our symmetric target of 2 % inflation in the medium term. i ’ ll come back to that shortly, but me begin with the current outlook. [ slide # 2 eurozone recovering well