ECB policymaker Schnabel says further rate hikes will likely be needed
- Full report here
ECB’s Schnabel reiterated that ECB is not done tightening yet. She’s one of the ECB’s most influential voices, so her comments carry significant weight because they often signal where the policy debate inside the Governing Council is heading.
Schnabel said that based on current conditions, further rate hikes will likely be needed to bring inflation back to the ECB’s 2% target over the medium term, though the pace and size of future moves will depend on developments in the Middle East, growth, and incoming inflation data, which still points to the next rate hike coming after the summer if the data supports such a move.
While the US-Iran MoU and much lower oil prices have improved the near-term outlook, she warned this is not enough to justify complacency. She said energy prices remain elevated relative to pre-war levels, and longer-dated energy contracts still point to persistent cost pressures (debatable). She highlighted ongoing risks from disrupted shipping through the Strait of Hormuz, higher insurance costs, damaged energy infrastructure, and the need to rebuild strategic reserves and refill European gas storage ahead of winter.
Schnabel stressed that the ECB is increasingly worried about second-round inflation effects. She said the initial energy shock is already spilling into broader inflation, with non-energy goods and services showing upward pressure as firms begin passing higher input costs to consumers. This raises the risk that higher inflation could eventually feed into stronger wage demands, even though wage growth has not yet accelerated materially.
She defended the ECB’s recent rate hike, arguing it was appropriate under all scenarios, including a milder one where oil normalizes quickly, because it helps prevent temporary energy shocks from becoming entrenched in medium-term inflation.
Schnabel also pushed back against any suggestion that policy is already restrictive, saying the latest hike is relatively small and ECB rates are not yet restrictive enough to materially suppress demand. This means she sees room for further tightening if inflation remains sticky.
On growth, she acknowledged the energy shock but argued the Eurozone economy remains surprisingly resilient, supported by fiscal spending, infrastructure investment, defense spending, and the global AI-driven investment cycle. However, she warned that stronger demand, combined with government stimulus, could itself become another source of inflation, requiring additional monetary tightening.
Keep in mind that Schnabel generally leans on the hawkish side so, although her remarks are not surprising, they suggest that the ECB is still worried about second-round effects and will keep the tightening bias until the conditions change.
This article was written by Giuseppe Dellamotta at investinglive.com.