ECB Insight: De Guindos and Schnabel Signal Unity on July Pause, Diverge Beyond

16 June 2025

By David Barwick – FRANKFURT (Econostream) – The division within the European Central Bank Governing Council was apparent last week, but Vice President Luis de Guindos’ comments published Monday made it even clearer - not just where the lines lie, but also where common ground has emerged.

In an interview with Reuters, de Guindos confirmed that the markets had understood what the ECB’s being in a ‘good place’ essentially meant. Yet, in line with a policymaker relatively hesitant to call time on the easing cycle, he first underscored the critical role of forthcoming macroeconomic projections and the prevailing uncertainty.

Implicitly, he seemed to accept that a July pause is now highly probable, while keeping alive the possibility of a rate cut in September.

De Guindos was careful not to go too far. He declined to endorse the idea that another rate cut should follow just because the ECB’s projections currently include one. Likewise, he refrained from fully embracing the notion that next year’s inflation undershoot might persist, calling that risk ‘very limited’ even as he again emphasised the ‘huge’ surrounding uncertainty.

But then, there was little need for him to go all out, as in his telling of the story, the medium-term impact of tariffs would be both growth- and inflation-dampening. The longer-term inflationary consequences, though upwards, ‘go beyond our projection horizon’, he said, thus suggesting that over the relevant timeframe, tariffs would more readily support than constrain additional monetary easing.

This perspective aligns with the speech he gave the same day the interview took place - last Thursday. Mindful of his role in maintaining ECB messaging discipline, he cited drivers of medium-term growth, echoing the Governing Council’s 5 June monetary policy statement.

But having fulfilled that obligation, he offered a more candid look at his thinking, focussing on potential ‘challenges ahead’ that could ‘have a dampening impact on growth in the euro area.’ Real economic developments, he noted, are ‘an early indicator for the inflation outlook’ - a comment that hinted less at confidence in medium-term price stability than at the possibility of further rate moves.

That same day, Executive Board member Isabel Schnabel also spoke. Unlike de Guindos, Schnabel enthusiastically echoed the ‘good place’ framing, confirmed that financing conditions were ‘no longer restrictive’, and described policymakers as ‘quite comfortable’ with their current stance.

Like her colleague, she avoided specific guidance on the next rate move. But her emphasis diverged clearly: she was more attuned to upside risks to medium-term inflation.

She argued that the ECB’s models underestimated the inflationary impact of tariffs, treating them too narrowly as a demand-side shock. With retaliation, she warned, the effect ‘could be much bigger.’ As for undershooting, she dismissed fears of expectation de-anchoring, saying, ‘At least for now we are very far away from that.’

Taken together, their remarks underscore the developing split: for Schnabel, there are reasons to consider the easing cycle complete; for de Guindos, reasons to think it may yet resume, at least briefly.

Still, at this early stage in the current phase of ECB policy - begun with the 5 June decision - Governing Council members are wise to avoid staking out inflexible positions. The uncertainty both sides highlight, reinforced by geopolitical developments since then, keeps all options in play.

Yet unless incoming data offer a compelling surprise, the likelihood of a July cut appears remote. On that, at least, there seems to be a shared understanding.