Why does ECB's Isabel Schnabel argue that interest rates must rise further?

Schnabel argues that further rate hikes are necessary because the euro-zone economy is resilient—evidenced by stronger-than-expected German output, rising aggregate demand, fiscal support, increased defense spending, and the global AI boom—while inflation faces sustained upside risks from high and persistent energy costs, especially natural gas due to low European storage levels and the prolonged Middle East conflict; she warns that waiting for inflation to feed into wages would leave policymakers 'behind the curve', and that at the current policy rate, inflation is unlikely to return to the 2% target over the medium term.

What does Schnabel say about the timing and magnitude of future ECB rate increases?

Schnabel states that 'how much further tightening is needed will depend on incoming data', confirms the ECB is well positioned to act amid 'uncomfortable' inflation, acknowledges markets 'seem to understand our reaction function very well', but declines to specify the exact magnitude or timing of additional hikes—though investors are pricing in a quarter-point move to a 2.5% deposit rate next month and another by spring 2027, possibly as early as December.

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