ECB Insight: Schnabel Casts Further Doubt on September Cut

11 July 2025

By David Barwick – FRANKFURT (Econostream) – We wrote in this space on 27 June that it was ‘appropriate to view a September cut — never a certainty — with less confidence than may have seemed justified three weeks ago.’ If at the time we tended to incline toward the view that the September cut could simply be delayed, we must now wonder whether there will be any further easing at all.

That view is naturally influenced in no small measure by our interview, published today, with European Central Bank Executive Board member Isabel Schnabel.

It is easy to counter that Schnabel is relatively hawkish and that she was never likely to say anything in obvious tension with her well-known resistance to easy money. It is harder to dismiss the arguments she marshals in support of her reluctance to countenance another rate cut.

That the ECB projects 1.6% inflation next year, as some users of X quickly objected, doesn’t make for a compelling rebuttal. Schnabel has already made sufficiently clear elsewhere that the 2026 forecast needs to be seen in the context of an overall situation that, as she has argued, constitutes a ‘very clear case of looking through temporary deviations of headline inflation from target’.

Obviously, the interview took place under ongoing uncertainty about the level of tariffs Europe will wind up confronting. Had a surprisingly negative trade agreement been reached before the publication of the interview, then it would have gone without saying that all parties involved would have wished to revisit the messaging.

After all, it hardly needs saying that there are outcomes of the trade dispute that would lead Schnabel to revisit her opposition to more easing. We feel sure that a significant economic contraction would constitute grounds for her to join the ranks of those policymakers who already want to do more.

That however is neither Schnabel’s nor the ECB’s baseline at the moment. As of the interview late Wednesday morning, the newest public signals on tariffs were broadly encouraging.

In particular, the latest sounds from US President Donald Trump had been soothing: ‘They [the EU] treated us very badly until recently, and now they're treating us very nicely. It's like a different world, actually.’

Compared with a month ago—when she was already clearly disinclined to cut further—Schnabel now sounds even more resolute.

That fits our growing—but by no means complete—scepticism about the likelihood of a September cut.

Schnabel is not the only reason for our slowly mounting doubt about September. Most recently, Croatian National Bank Governor Boris Vujčić also seemed to support our narrative of uncertainty.

In an interview with German business daily Handelsblatt on Tuesday, Vujčić made clear that September was not a promise, dismissed concerns about short-term deviations from target and emphasised that the ECB had—from its current 2% vantage point—the ‘luxury’ of being able to wait and see what if anything would be needed.

Perhaps the only surprise in the Schnabel interview was her reluctance to confirm that policy is already accommodative. Here, she chose the more cautious phrasing that ‘we are becoming accommodative’.

We assume that this reflects the impossibility of saying in real time precisely at what exact point restriction and accommodation meet.

Still, it's hard to imagine her accepting that anything below 2% is not accommodative, as this would imply mathematically that the natural rate of interest in real terms is negative, which would not even be consistent with market pricing.

Notably, even Schnabel’s dovish colleague, Banca d’Italia Governor Fabio Panetta, was careful to hedge his bets in remarks today. Though we don’t doubt that Panetta would be at the forefront of any charge to ease policy further, rather than arguing clearly for more cuts from today’s perspective, he said that these would be appropriate ‘[i]f downside risks to growth were to strengthen disinflationary trends’.

‘The key issue now is whether the current level of interest rates is appropriate to keep inflation close to the target, avoiding protracted deviations in either direction’, he said, implicitly acknowledging that this question is not settled.

Indeed, there were clear echoes of Vujčić in Panetta’s comments, with the latter also confirming ‘wait-and-see’ mode’. ‘The restoration of price stability and the ample room for policy manoeuvre means that the Governing Council is now in a good place to weigh its next moves carefully’, Panetta said.

To be clear, we don’t by any means write off a September cut at this stage. We just think it has been growing slowly less likely. Barring a new development that shifts the outlook, we now see a continuation of the July pause as slightly more likely than a September cut.