ECB’s Schnabel: ‘We Believe That We Are Still on the Right Track’, Must Watch Services Inflation
19 January 2025

By David Barwick – FRANKFURT (Econostream) – European Central Bank Executive Board member Isabel Schnabel on Sunday said that the ECB would be able to cut interest rates if inflation subsided with the anticipated speed, but that monetary authorities would soon have to consider more carefully how much room to ease policy remained.
In an interview with German news portal Finanztip, Schnabel said that despite higher-than-expected inflation in Germany last month and potentially this one, ‘we are still optimistic.’ After all, she said, inflation for the euro area as a whole was as expected.
‘And that is why we believe that we are still on the right track and hope that we will return to our inflation target of 2.0% this year’, she said.
This ‘depends very much on what happens with services inflation’, she said. The expectation was that it would ‘go down significantly this year’, paving the way for more easing, she indicated.
‘If inflation falls as quickly as we expect, then we also believe that we can lower interest rates further’, she said. ‘However, it is also the case that now, after these sharp interest rate cuts that we have already had in recent months, we are getting closer and closer to the point where we have to take a closer look to see whether and how much further we can lower interest rates.’
Schnabel acknowledged that there remained upside risks to the inflation outlook, but sounded upbeat, saying that ‘at the moment we have the feeling that everything is going in the right direction’.
Authorities were nonetheless monitoring developments closely and would respond as required, she said.
Given the ‘prominent role’ of tariffs in US President-elect Donald Trump’s rhetoric, ‘it is indeed very likely that a trade conflict will arise’, she said. ‘It is unclear exactly what it will look like, and of course what it means for us depends on that. … What can be said is that tariffs in general lead to a loss of global prosperity.’
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