ECB's Schnabel says policy is neutral, can wait after Iran shock

ECB's policy is now neutral, giving them time to watch inflation after the recent Iran conflict. This is different from previous periods of tightening.
By Newsroom | Economy, Europe |

European Central Bank (ECB) Executive Board member Isabel Schnabel stated that the bank's current policy stance is broadly neutral, positioning it advantageously to calmly assess recent geopolitical developments, specifically the Iran shock. Schnabel indicated that the ECB can afford to be patient following this event, as inflation had already returned to the bank's target prior to the shock.

Schnabel emphasized that with inflation back at target and policy considered neutral, the ECB has room to wait for evidence of any lasting "second-round effects" on prices. The central banker's remarks, made recently and also noted in past statements, suggest a focus on whether inflation becomes entrenched through wage increases or other persistent pressures. While this focus on risks maintains a hawkish undertone, Schnabel’s overall message conveys a sense of confidence in the ECB’s current position to navigate the fallout.

Read More: Global Debt Rises to 80% of Economy, Causing Fiscal Worries

Inflation Expectations and Policy Assessment

Schnabel has consistently highlighted the importance of anchored inflation expectations, noting that temporary overshoots in inflation are of less concern if expectations remain stable. She has pointed to consumer and firm expectations as being above the 2% target. This perspective underpins her assessment that the current monetary policy settings are appropriate.

ECB in 'relatively favorable' policy position, Schnabel says - 1

The recent geopolitical events, particularly the Iran conflict, introduce upside risks to inflation. Schnabel acknowledged these risks, stressing the need for careful monitoring of the persistence of energy price shocks and drawing lessons from post-pandemic experiences to guide the ECB’s approach.

Historical Context and Schnabel's Stance

Schnabel, widely recognized as a more hawkish voice within the ECB, has previously warned about the potential for inflation pressures, especially from wages, services, and energy, to be more persistent than commonly anticipated. Her approach, as observed in late 2025, involves distinguishing sharply between headline and underlying inflation, treating temporary distortions as manageable. She appears to place greater weight on the broader macroeconomic narrative than on precise inflation path projections, maintaining a skepticism towards risks of further downward inflation movement.

Read More: Hungary election: Orbán loses power after 16 years, impacting global far-right

Statements from mid-2025 also reflected Schnabel's view that interest rates were in a "good place." At that time, she attributed the expected slowing of inflation partly to energy price base effects and a stronger euro exchange rate, characterizing these as temporary phenomena. Her stance has consistently indicated a cautious optimism, balancing the current policy effectiveness with an awareness of potential inflationary persistence.

Frequently Asked Questions

Q: What did ECB's Isabel Schnabel say about the bank's current policy?
Isabel Schnabel said the European Central Bank's (ECB) policy is 'neutral'. This means the bank is in a good position to watch and think about recent events, like the Iran conflict, without rushing.
Q: Why can the ECB wait to make decisions after the Iran shock?
Inflation in the Eurozone was already back to the ECB's target before the Iran conflict. Schnabel believes the bank can wait to see if the conflict causes lasting price increases, like higher wages, before changing policy.
Q: What are the risks Schnabel is watching for?
Schnabel is watching for 'second-round effects' on inflation. This means she is looking to see if temporary price increases, like from energy, lead to permanent higher prices through things like wage demands.
Q: What does Schnabel think about inflation expectations?
Schnabel noted that people's and companies' expectations for future inflation are currently higher than the ECB's 2% target. She believes that if these expectations stay high, it could be a sign of future inflation problems.
Q: Is Schnabel's view hawkish or dovish?
Schnabel is often seen as a 'hawkish' voice, meaning she is more concerned about inflation rising too high. However, her current message suggests confidence in the ECB's ability to handle the situation calmly due to the neutral policy stance.