ECB President Lagarde struck a cautiously optimistic tone in her press conference remarks, highlighting that the euro area economy grew more than expected in the first quarter, with a solid 0.6% expansion partly attributed to Ireland, frontloaded spending, and stronger consumption and investment. She noted that survey data point to a continued modest expansion, supported by a strong labor market, rising real incomes, and healthy private sector balance sheets. Defense and infrastructure investment are also expected to bolster growth. However, Lagarde acknowledged that higher tariffs and a stronger euro may weigh on firms’ ability to invest, while global trade tensions and geopolitical uncertainty remain downside risks – although she also highlighted the potential upside from solving all the tariff and geopolitical risks. A deterioration in financial market sentiment could also increase risk aversion.On inflation, Lagarde emphasized that underlying indicators suggest inflation is stabilizing around the ECB’s 2% target. She pointed to moderating labor costs and improved productivity, which have contributed to slower unit labor cost growth. Short-term inflation expectations have eased, while long-term expectations remain anchored near 2%. The outlook for inflation, however, is more uncertain than usual, especially given potential bottlenecks and undetermined tariff impacts. Lagarde reaffirmed that the ECB does not target exchange rates, though it monitors them closely due to their implications for inflation.Policy-wise, Lagarde stressed that the ECB is not pre-committing to any particular rate path and that decisions will be based on incoming data. The current stance was supported by a unanimous vote and a broadly shared risk assessment. She stated the ECB is in a "good place" to hold rates steady while watching how risks evolve, adding that inflationary shocks appear to be behind them. Minor deviations from the 2026 target will not trigger immediate policy action, and any retaliatory tariffs remain optional at this stage. Lagarde reiterated that resolution of trade and geopolitical tensions could clear uncertainty and spur economic activity.Market notes:EURUSD dipped to a session low near 1.1731 but has since bounced, trading around 1.1754–1.1769, a key swing area.The German 10-year Bund yield is trading near the highs at 2.696%, up 9.7 bps. This article was written by Greg Michalowski at investinglive.com.