ECB Executive Board Member Isabel Schnabel signaled today that the central bank’s monetary easing cycle is “coming to an end,” citing stable medium-term inflation forecasts and improving macroeconomic conditions.

Speaking with notable confidence, Schnabel downplayed the expected dip in inflation—projected at just 1.6% in 2026—as a “temporary deviation” caused by energy base effects and a stronger euro.

Schnabel painted a relatively constructive picture of the Eurozone economy, stating that growth remains “broadly stable” even as global trade tensions intensify. Private consumption continues to provide a key pillar of support, while both manufacturing and construction sectors are showing signs of recovery. She also highlighted that “Additional defense and infrastructure spending counteract tariff shock on growth”.

In her view, these structural shifts, combined with a resilient Euro and outperforming equity markets, reflect a “new European growth narrative” that could elevate the region’s economic standing.

Still, Schnabel acknowledged the risks posed by escalating trade tensions, particularly in the form of inflation volatility and financial market uncertainty. She warned that tariffs can be amplified through global value chains, posing upside risks to inflation. At the same time weaponisation of raw materials threatens to further strain supply chains.

Full presentation slides of ECB’s Schnabel here.

Comments from two ECB Governing Council members today reinforced a cautious stance as the easing cycle appears to have reached a natural pause, following eight consecutive rate cuts.

French member Francois Villeroy de Galhau emphasized flexibility, telling Franceinfo radio that future policy will depend on how inflation evolves, stressing a preference for “pragmatism and agility.”

Lithuanian member Gediminas Šimkus echoed a similar tone, stating that policy has now reached a “neutral level”. It is critical for ECB to maintain the freedom, “not to commit to one direction or another”. He warned of growing uncertainty, particularly around upcoming US trade decisions as the 90-day tariff truce nears expiry on July 9.

ECB Chief Economist Philip Lane emphasized that last week’s rate cut was a strategic step to ensure inflation remains on track toward the 2% target over the medium term. He argued that, without this move, the “projected negative inflation deviation” over the next 18 months could have risked becoming entrenched.

In a speech today, Lane also stressed the importance of clarity in ECB’s reaction function. By cutting the deposit facility rate to 2.00%, the central bank signaled that “we are determined to make sure that inflation returns to target in the medium term”. This helps “underpin inflation expectations and avoid an unwarranted tightening in financial conditions.”

On the other hand, holding the rate at 2.25% could have sent the wrong signal, Lane warned, potentially triggering a market repricing that would reinforce a “more pronounced and longer-lasting undershoot of the inflation target.”

Full speech of ECB’s Lane here.

Latvian ECB Governing Council member Martins Kazaks signaled openness to further interest rate cuts, suggesting that while ECB has already delivered significant easing, “fine-tuning” adjustments could be needed depending on how the economy evolves.

He noted that current market pricing for one more cut is “not out of the realm of the baseline,” but stressed that any additional moves must be carefully calibrated to keep inflation anchored near the 2% target.

Kazaks warned against complacency, highlighting risks of a persistent inflation undershoot. While not yet leaning toward accommodative territory, he emphasized the importance of vigilance, particularly amid the uncertain impact of global trade tensions. So far, deflationary effects seem to dominate, but the final outcome remains highly uncertain and must be watched closely.

French ECB Governing Council member Francois Villeroy de Galhau said in a conference today that ECB is now in a favorable “2 and 2 zone. That means, inflation is forecast at 2% this year, while deposit rate is also at 2%.

Nevertheless, he warned that with current uncertainties, this zone “does not mean a comfortable zone or a static zone”. “We will remain pragmatic and data-driven, and as agile as necessary,” Villeroy added.

Separately, Finnish ECB policymaker Olli Rehn warned that as inflation is projected to stay below 2% this year, the central must be mind of “not slipping towards the zero lower bound.”

“We must not grow overconfident — instead we must stay vigilant and monitor the risks in both directions,” Rehn said. “The ECB team must remain alert and ready to act with agility as and if needed.”