Latest news with #IsabelSchnabel
Irish Times
5 days ago
- Business
- Irish Times
ECB hawk calls for rate cut pause until September amid trade tensions
The European Central Bank should pause further interest rate cuts until at least September, one of its most hawkish policymakers has said, warning that 'we should keep our powder dry' given the simmering European Union -US trade war. Austrian central bank governor Robert Holzmann said he saw 'no reason' for the European Central Bank to lower rates at its June and July meetings. 'Moving [interest rates] further south would be more risky than staying where we are and waiting until September,' Mr Holzmann said, arguing that a further rate cut at this stage was likely to have 'no effect' on economic activity in the euro zone. Mr Holzmann's hawkish comments point to disagreement among ECB rate setters, as they weigh how to approach Donald Trump's trade war ahead of their next meeting on June 5. READ MORE The US president last week threatened to impose 50 per cent tariffs on imports from the European Union (EU) from June 1st but has since agreed to delay until July 9th to allow time for talks with the bloc. Fellow ECB hawk Isabel Schnabel warned earlier this month that the trade conflict could fuel inflation and limit the central bank's room for manoeuvre. [ Why ECB's latest interest rate cut was a no-brainer Opens in new window ] In contrast, Belgium's central bank governor Pierre Wunsch – previously also known for his hawkish views – earlier this month called for the ECB to be ready to cut rates to 'slightly below' 2 per cent this year. Both Mr Wunsch and Ms Schnabel spoke before Trump issued his 50 per cent tariff threat on Friday, which marked a significant escalation in the trade feud. Policymakers in Frankfurt have lowered their key deposit facility rate seven times since last June, bringing it down from 4 per cent to 2.25 per cent at their previous meeting in April. 'We're at a critically low level of housing stock' for buyers and renters Listen | 33:06 Given that euro zone inflation is hovering close to the ECB's medium-term target of 2 per cent while growth forecasts are bleak, investors and analysts expect another quarter-point cut at the central bank's June meeting. Markets have also priced in at least one further cut later this year. Mr Holzmann argued that economic activity in the currency area was being held back by 'extreme uncertainty' rather than restrictive monetary policy. 'Key economic decisions by market participants are delayed and not taken. [ ... ] People want to wait.' In such a context, a reduction in interest rates would not do much – if anything, he argued. [ Further ECB rate cut in June all but guaranteed Opens in new window ] The Austrian central bank governor, whose term will expire later this year, also said that borrowing costs in the euro area have come down so much over the past year that they were no longer slowing down economic activity and were potentially even stimulating growth. He views the 'neutral' rate of interest – where borrowing costs are doing neither – at somewhere between 2.5 per cent and 3 per cent. 'Most if not all of the recent estimates on [the neutral rate of interest] for Europe point to quite a strong increase since the beginning of the year 2022. We are already at least at the neutral level.' Germany's planned €1 trillion debt-funded spending plans were another reason for the ECB to maintain 'a steady hand', Mr Holzmann said. If implemented by Germany's new chancellor, Friedrich Merz, they should boost economic growth in the currency area. Mr Holzmann described Mr Merz's plan as 'a fiscal shock to Europe, which will help us to turn the current development around'. While Mr Holzmann acknowledged that 'many' of the 25 other members of the ECB governing council were 'a bit' more dovish than him, he stressed that he did not feel 'isolated at all', arguing that 'a number of people' on the decision making body were also 'sceptical' about additional interest rate cuts. – Copyright The Financial Times Limited 2025
Zawya
22-05-2025
- Business
- Zawya
Case growing for summer pause in ECB easing cycle
FRANKFURT - The European Central Bank is expected to cut interest rates once again in June but the case is growing for a pause beyond that as the economy is holding up better than feared and an inflation challenge is starting to creep up on the horizon. The ECB has been easing policy quickly for the past year as runaway consumer inflation is now largely tamed and focus has shifted to anaemic economic growth, exacerbated by a global trade war, erratic U.S. policy and deeply rooted inefficiencies at home. The ECB's seven rate cuts in its last eight meetings have given the economy some breathing space and policymakers must now reconcile a divergence between the shorter and longer term outlook. In the coming months, inflation could drop further and even undershoot the ECB's 2% target, rekindling memories of the pre-pandemic decade when the ECB tried and failed to raise price growth back to target. But in the longer run, a jump in government spending, deglobalisation, trade barriers and stress in the labour market from a shrinking working age population are all likely to put upward pressure on prices. Policymakers speaking on and off the record suggest that the discussion is not so much about the June decision since that is already well baked into expectations, but about signals for subsequent months given longer term risks. "Tariffs may be disinflationary in the short run but pose upside risks over the medium term," ECB board member Isabel Schnabel, an outspoken policy hawk said in an explicit call for a pause. "Even if the EU does not retaliate, higher production costs transmitted through global value chains could more than offset the disinflationary pressure coming from lower foreign demand, making tariffs inflationary overall," Schnabel added. Klaas Knot, the longest serving member of the ECB's Governing Council, also warned about longer-term risks. "The negative demand shock is immediate and will lead to lower inflation on the short run," he said. "But the supply shock could lead to higher inflation in the middle to long term." The argument is that trade barriers raise prices for everyone and will lead to more fragmented production, which is inherently more costly. Longer term inflation expectations have been inching up in recent weeks, especially since the U.S. struck a temporary trade deal with China, indicating that investors see inflation dipping first, then rebounding, possibly above 2%. That creates a communication issue for the ECB. Policymakers will be expected by some to provide accommodation if inflation indeed falls below 2% around the turn of the year on lower energy prices, weak growth, a stronger euro and dumping by manufacturers who face a tariff hit in the U.S. PAUSE CASE But the ECB's task is to look past short-term oscillations and focus on the medium term, since policy impacts prices on a 12 to 18 month horizon and is considered largely powerless on the immediate future. "The question is thus whether the ECB will dare to 'look through' this period of undershooting, or whether there are greater concerns for the anchoring of inflation expectations as inflation drops lower," Societe Generale said in a note. "We also feel less convinced about the need for a July rate cut given the easing of trade war tensions and resilient data, with an increased possibility that the ECB may choose to pause after June to gather more information," Societe Generale added. Financial investors also see a pause beyond June, anticipating just one final cut toward the end of the year, taking the deposit rate to 1.75%. Although policymakers are not keen to explicitly signal policy, several, including France's Francois Villeroy de Galhau, Finland's Olli Rehn and Belgium's Pierre Wunsch have all sent dovish signals, solidifying bets about June. Others speaking off record say that June is largely a done deal and the real conversation is about July and beyond. They say that a distinct camp is already visible, looking to make clear that a pause is now needed. Even if July is a skip, policymakers are still likely to maintain a bias towards more policy easing later in the year because the trade war has already done damage. "The ECB's easing bias remains alive and kicking," TS Lombard said. "The evidence points to US tariffs depressing EA growth and inflation, while putting in question the job market celebrated 'resilience' through their hit to corporate profits."
Reuters
22-05-2025
- Business
- Reuters
Case growing for summer pause in ECB easing cycle
FRANKFURT, May 22 (Reuters) - The European Central Bank is expected to cut interest rates once again in June but the case is growing for a pause beyond that as the economy is holding up better than feared and an inflation challenge is starting to creep up on the horizon. The ECB has been easing policy quickly for the past year as runaway consumer inflation is now largely tamed and focus has shifted to anaemic economic growth, exacerbated by a global trade war, erratic U.S. policy and deeply rooted inefficiencies at home. The ECB's seven rate cuts in its last eight meetings have given the economy some breathing space and policymakers must now reconcile a divergence between the shorter and longer term outlook. In the coming months, inflation could drop further and even undershoot the ECB's 2% target, rekindling memories of the pre-pandemic decade when the ECB tried and failed to raise price growth back to target. But in the longer run, a jump in government spending, deglobalisation, trade barriers and stress in the labour market from a shrinking working age population are all likely to put upward pressure on prices. Policymakers speaking on and off the record suggest that the discussion is not so much about the June decision since that is already well baked into expectations, but about signals for subsequent months given longer term risks. "Tariffs may be disinflationary in the short run but pose upside risks over the medium term," ECB board member Isabel Schnabel, an outspoken policy hawk said in an explicit call for a pause. "Even if the EU does not retaliate, higher production costs transmitted through global value chains could more than offset the disinflationary pressure coming from lower foreign demand, making tariffs inflationary overall," Schnabel added. Klaas Knot, the longest serving member of the ECB's Governing Council, also warned about longer-term risks. "The negative demand shock is immediate and will lead to lower inflation on the short run," he said. "But the supply shock could lead to higher inflation in the middle to long term." The argument is that trade barriers raise prices for everyone and will lead to more fragmented production, which is inherently more costly. Longer term inflation expectations have been inching up in recent weeks, especially since the U.S. struck a temporary trade deal with China, indicating that investors see inflation dipping first, then rebounding, possibly above 2%. That creates a communication issue for the ECB. Policymakers will be expected by some to provide accommodation if inflation indeed falls below 2% around the turn of the year on lower energy prices, weak growth, a stronger euro and dumping by manufacturers who face a tariff hit in the U.S. But the ECB's task is to look past short-term oscillations and focus on the medium term, since policy impacts prices on a 12 to 18 month horizon and is considered largely powerless on the immediate future. "The question is thus whether the ECB will dare to 'look through' this period of undershooting, or whether there are greater concerns for the anchoring of inflation expectations as inflation drops lower," Societe Generale said in a note. "We also feel less convinced about the need for a July rate cut given the easing of trade war tensions and resilient data, with an increased possibility that the ECB may choose to pause after June to gather more information," Societe Generale added. Financial investors also see a pause beyond June, anticipating just one final cut toward the end of the year, taking the deposit rate to 1.75%. Although policymakers are not keen to explicitly signal policy, several, including France's Francois Villeroy de Galhau, Finland's Olli Rehn and Belgium's Pierre Wunsch have all sent dovish signals, solidifying bets about June. Others speaking off record say that June is largely a done deal and the real conversation is about July and beyond. They say that a distinct camp is already visible, looking to make clear that a pause is now needed. Even if July is a skip, policymakers are still likely to maintain a bias towards more policy easing later in the year because the trade war has already done damage. "The ECB's easing bias remains alive and kicking," TS Lombard said. "The evidence points to US tariffs depressing EA growth and inflation, while putting in question the job market celebrated 'resilience' through their hit to corporate profits."
Bloomberg
17-05-2025
- Business
- Bloomberg
ECB's Schnabel Says ‘Steady Hand' Needed on Interest Rates
The European Central Bank should remain caution on interest-rate moves, according to Executive Board member Isabel Schnabel. 'We need to maintain a steady hand for now,' she told the Table Today podcast in an episode aired Saturday, echoing earlier comments. 'We can leave rates broadly at the level they are at now and are confident that we can also maintain price stability in this way.'
Reuters
16-05-2025
- Business
- Reuters
ECB's Lane queries value of publishing economic scenarios
WASHINGTON, May 16 (Reuters) - European Central Bank chief economist Philip Lane argued on Friday that publishing alternative economic scenarios alongside the ECB's economic projections may raise more problems than it solves. Caught on the hop by a surge in inflation in 2021-22, the ECB and other central banks around the world are pondering ways in which they can incorporate and communicate the risk that economies perform differently to what they expect. While the ECB sketched out scenarios diverging from its baseline at times in the past, including during the height of the COVID-19 pandemic, Lane preferred a richer discussion behind closed doors before consensus is reached. "It is also not clear whether such a curated approach would be superior to a 'many scenario' internal staff analysis (possibly augmented by machine learning algorithms)," he told an event at the Federal Reserve. "A basic concern is that the selected curated scenarios might turn out to have shined the spotlight on risk factors that proved to be immaterial and might give the impression that the risk analysis was too narrow in scope." Lane added that picking a few scenarios out of many possible ones for each policy meeting would be "logistically taxing" for an ECB Governing Council that includes 26 members. ECB board member Isabel Schnabel floated the notion of publishing each policymaker's expected rate path last year, but this prospect was quickly shot down by her colleagues.
