BlockBeats report: On May 26, according to Reuters, Isabel Schnabel, a member of the ECB's Executive Board and a potential candidate for ECB President, stated that even if peace negotiations between the United States and Iran yield results, the ECB should still initiate an interest rate hike in June. She argued that the current energy shock has lasted far longer than expected, and damage to energy infrastructure and supply chain disruptions have already transmitted high energy prices to broader sectors of the economy.
Schnabel noted that eurozone inflation has risen to 3% and that further upside risks remain. Within the ECB, there is concern that high energy costs are pushing up prices for goods and services through "second-round effects," creating more persistent inflationary pressures. She emphasized that the ECB’s previous baseline forecast already incorporated two rate hikes, and a single action may not be sufficient to achieve the inflation target.
The market has largely priced in expectations for two future increases in the ECB’s deposit rate, with a roughly 50% probability of a third hike within the next year. However, the ECB will not pre-commit to a future path and will continue to adjust policy dynamically based on data from each meeting. Meanwhile, Schnabel warned that persistently high energy prices could also lead to weaker-than-expected eurozone growth, creating pressure from simultaneously slowing growth and rising inflation.