ECB Executive Board member Isabel Schnabel said further tightening will be necessary as energy-driven inflation risks persist and euro area economy stays resilient. In an interview with Bloomberg News published Wednesday, Aug. 26, Schnabel said, “At the current policy rate, inflation is unlikely to return to target over the medium term, and therefore further tightening will be necessary.” Her remarks reinforce expectations for another ECB move after June’s rate increase and go beyond simply keeping September hike on table.
Schnabel also warned that inflation is likely to stay above 2% for an “extended period” because of elevated energy costs. She argued that waiting for those pressures to feed fully into wages would risk leaving policymakers “behind the curve.” That language points to a pre-emptive reaction function: ECB does not need to wait for second-round effects to become entrenched before tightening further.
While Schnabel did not specify how many additional hikes may be required, she said markets “seem to understand our reaction function very well.” Her message therefore supports a hawkish near-term bias without committing ECB to a predetermined path beyond the next move. September remains the obvious focus, but Schnabel’s argument is broader: current rate setting is not yet sufficient to bring inflation sustainably back to target.
Key Takeaways
- ECB Executive Board member Isabel Schnabel said “further tightening will be necessary” because inflation is unlikely to return to target over medium term at current policy rate.
- She expects inflation to remain above 2% for an “extended period”, largely because of elevated energy costs.
- Schnabel warned that waiting until higher energy prices feed into wages could leave ECB “behind the curve.”
- Her comments point to a pre-emptive policy stance, with ECB willing to act before second-round inflation effects are fully visible.
- Schnabel did not specify how many additional hikes may be needed, preserving flexibility beyond next move.
- She said markets “seem to understand our reaction function very well,” suggesting current pricing broadly reflects ECB’s policy framework.
- September remains immediate focus, but Schnabel’s argument is broader: current rate setting is not yet sufficient in her view.
