Mario Centeno, a member of the European Central Bank (ECB) Governing Council, issued a warning to colleagues over the possible negative effects of excessive tightening on the labour market in the event of an economic crisis. Centeno said on the Bank of Portugal’s website that hiring freezes and job destruction happen more simultaneously during recessions than during upswings, and that employment does not shift gradually during these times. It took three years to return employment to pre-pandemic levels, but it would only take a little while to undo those gains, he pointed out.
While her predecessor, Mario Draghi, conjectured that the region would be in a recession, ECB President Christine Lagarde recently noted “some signs” of employment growth losing speed. Centeno’s caution comes at a time when policymakers are dealing with quickly declining inflation and the potential for investors to factor in a reduction in interest rates as early as April. He underlined how crucial it is for fiscal and monetary policy to recognise labour market difficulties and refrain from tightening more than is absolutely necessary.
A recession in the region was predicted by her predecessor, Mario Draghi, but ECB President Christine Lagarde has pointed to “some signs” that the rate of job growth is slowing down. Centeno’s caution comes at a time when investors may factor in a cut in interest rates as early as April, and officials are juggling rapidly decreasing inflation. He emphasised how important it is that labour market challenges be acknowledged by fiscal and monetary policy, and that further tightening be avoided.