ECB Executive Board member Isabel Schnabel, widely known for her hawkish stance, has shifted her tone, adding to growing signals from other officials that the central bank is preparing for a 25bps rate cut this month.
Schnabel acknowledged in a speech overnight the “headwinds to growth,” pointing to weakening labor demand and progress in disinflation. She noted that a “sustainable fall of inflation back to our 2% target in a timely manner is becoming more likely,” despite persistent inflation in services and strong wage growth.
Schnabel also highlighted that while the peak impact of monetary tightening is likely behind us and real incomes are rising, the recovery remains fragile. “Growth remains shallow,” she said, with the recovery repeatedly falling short of expectations over the past 18 months.
In separate remarks, Governing Council member Mario Centeno, a known dove, warned of the “new risk” of inflation undershooting the ECB’s target.
Centeno cautioned that this could “stifle economic growth,” leading to fewer jobs and reduced investment. A sluggish economy, he said, could create a “vicious cycle,” further driving inflation below the target and compounding economic challenges.
