ECB’s Schnabel: Inflation Outlook Uncertain, Cannot Pre-Commit to a Rate Path

7 June 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Executive Board member Isabel Schnabel on Friday said that the ECB must not pre-commit to a specific interest rate path, as there was still uncertainty about the future of inflation.

Speaking at a conference organised by the Stiftung Geld und Währung in Frankfurt, the text of which was posted on the website of the ECB, Schnabel said. ‘This [anchoring of inflation expectations] was a remarkable success for monetary policy, which contributed to our decision yesterday to lower interest rates by 25bp. However, as the future inflation outlook remains uncertain, we cannot pre-commit to a particular rate path.’

The anchoring of inflation was evidence that the confidence in monetary policy had been preserved, she said.

‘[E]xpectations have returned to the vicinity of our medium-term inflation target of 2%’, she said. ‘The broad stability of long-term inflation expectations disproves the theory of fiscal dominance.’

The fact that fiscal policy did not dominate monetary policy preserved monetary policy’s ability to act, she said.

‘In the coming years, a future-proof fiscal policy will be a prerequisite for safeguarding the independence of monetary policy’, she said. ‘Fiscal consolidation in line with the new European fiscal rules, while prioritising investment in the future, is essential to safeguard long-term growth and price stability.’