Philip Lane, the Chief Economist of the European Central Bank (ECB), issued a warning to financial markets on Tuesday, advising against pricing in potential cuts to interest rates within the next two years.

In an effort to tackle the significant inflationary pressures in the eurozone, the ECB had recently raised its main rate by 25 basis points to 3.5%. This increase marked the latest in a series of hikes implemented since July 2022.

The eurozone experienced headline inflation of 6.1% annually in May, slightly lower than the previous month’s 7%. Meanwhile, core inflation, which excludes volatile food and energy prices, remained at a high level of 5.3% year on year. These figures significantly surpass the ECB’s target of 2% inflation.

Speaking at the Sintra central bank meeting in Portugal, Lane engaged in a discussion with CNBC’s Annette Weisbach. He described the current phase of the eurozone economy as an “adjustment phase,” as higher interest rates gradually take effect and wages attempt to catch up with rising prices.

Lane cautioned market participants about the timing and pace of the reversal of restrictive monetary policies, stating, “We will not return to 2% inflation within a few months. It will take a couple of years to make substantial progress, particularly in the latter part of this year.”

Lane’s comments echoed sentiments expressed by ECB President Christine Lagarde, who emphasized the significant progress made but also stressed that victory over inflation has not yet been achieved.

Since July 2022, the ECB has implemented a total of 400 basis points in rate increases. While markets have factored in an additional 25 basis-point hike next month, along with the possibility of another increase in September, some economists speculate that the ECB may need to reverse its tightening measures if the higher rates lead to an economic downturn in the eurozone.

In contrast to the ECB’s approach, the U.S. Federal Reserve recently decided to pause its rate hiking cycle and maintain its target rate. Nevertheless, the Fed’s tone remained hawkish, hinting at potential rate increases later in the year.

Lane emphasized the importance of staying the course and maintaining restrictive monetary conditions for an extended period. He stated, “We need a sustained period where rates remain restrictive to prevent any new shocks from diverting us from the 2% target. The durability of this restrictive approach is crucial.”

Looking ahead, Lane dismissed the notion of rapid rate cuts in the next couple of years, suggesting that expecting such cuts would be inappropriate given the current circumstances.