European Central Bank hawkish executive: Inflation risks are on the rise, should pause interest rate cuts

According to the Zhitong Finance APP, Isabel Schnabel, a member of the European Central Bank's Executive Board, stated that due to the upward bias of inflation risks, the European Central Bank should maintain borrowing costs at current levels. The hawkish official mentioned in an interview on Tuesday that despite the impact of U.S. trade disruptions, the European economy remains in good shape, but price increases in the coming years may exceed expectations. Schnabel said: "I think our policy may have become slightly accommodative, so I see no reason for further rate cuts in the current situation. I have always believed that tariffs will generally push up inflation." Two days after these remarks, the European Central Bank will enter a one-week quiet period in preparation for the policy meeting on September 11. The market generally expects officials to maintain borrowing costs unchanged for the second time. Later on Tuesday, Eurostat will release the preliminary inflation estimate for the Eurozone for August, with analysts expecting a slight increase from 2% in July to 2.1%, slightly above the European Central Bank's target. Schnabel had previously stated before the July meeting that the threshold for further easing of policy is "very high"—a view reiterated by several colleagues afterward. Given that price increases hover around 2% and the economy continues to grow, they believe that the current level of interest rates is appropriate. Schnabel pointed out that the rapid rise in U.S. food prices, along with trade tariffs and expansionary fiscal policies, means that the balance of inflation risks "leans upward." She dismissed concerns about prices remaining persistently below target. "I think the likelihood of inflation expectations becoming unanchored is extremely low, especially after experiencing years of excessively high inflation." She told the media that due to trade, high government spending, and an aging population, global borrowing costs may begin to rise earlier than expected. "Therefore, I believe that the timing for global central banks to start raising interest rates again may be earlier than many currently expect." Regarding U.S. President Trump's criticism of the Federal Reserve, Schnabel warned that a loss of autonomy for the U.S. central bank could push up global borrowing costs. "Any attempt to undermine central bank independence will lead to an increase in medium- to long-term interest rates. If the Federal Reserve truly loses its independence—which I very much hope does not happen—it would cause severe damage to the global financial system and also affect the European Central Bank."