--- title: "Is the policy turning point here? The European Central Bank's hawkish stance praises market interest rate hike bets, suggesting there is no room for rate cuts" type: "News" locale: "en" url: "https://longbridge.com/en/news/268909609.md" description: "European Central Bank Executive Board member Isabel Schnabel expressed satisfaction with market interest rate hike expectations, believing that borrowing costs have bottomed out and that economic and inflation risks are tilted to the upside. She hinted that the December policy meeting may revise growth forecasts upward due to the resilience of the European economy exceeding expectations. Schnabel pointed out that increased consumer spending, business investment, and government spending will boost the economy, with the market anticipating that the next rate action will be a hike" datetime: "2025-12-08T07:08:02.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/268909609.md) - [en](https://longbridge.com/en/news/268909609.md) - [zh-HK](https://longbridge.com/zh-HK/news/268909609.md) --- > Supported Languages: [简体中文](https://longbridge.com/zh-CN/news/268909609.md) | [繁體中文](https://longbridge.com/zh-HK/news/268909609.md) # Is the policy turning point here? The European Central Bank's hawkish stance praises market interest rate hike bets, suggesting there is no room for rate cuts According to the Zhitong Finance APP, **Isabel Schnabel, a member of the European Central Bank's Executive Board, expressed satisfaction with investors betting that the ECB's next interest rate move will be a rate hike.** She stated that while borrowing costs are at a level suitable for maintaining for a period of time (unless further shocks occur), significant increases in consumer spending, business investment, and government spending on defense and infrastructure will boost the economy. "Both the market and survey participants expect the next interest rate action to be a rate hike, although it will not happen soon. I am quite satisfied with these expectations." Schnabel is the first ECB policymaker to clearly state that borrowing costs are not only at a "favorable position" (as repeatedly emphasized by ECB President Christine Lagarde) but have also bottomed out. This hawkish ECB member believes that economic and inflation risks are tilted to the upside. She hinted that new growth forecasts may be revised upward at the December policy meeting. ![21.png](https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20251208/1765177085322863.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg) Schnabel's confidence stems from Europe's resilience against the tariff shocks triggered by U.S. President Donald Trump. Consumers are benefiting from rapid wage growth and an unemployment rate close to historical lows. At the same time, favorable financing conditions and a surge in embracing artificial intelligence (AI) technology have also boosted investment. She stated, "In the face of the greatest disruption to the international trading order since World War II, the resilience shown by economic growth far exceeds expectations." She pointed out that surveys indicate a "robust expansion" will be seen before the end of the year, adding that "one reason the tariff impact has been milder than expected is that uncertainty has decreased quite rapidly." ![22.png](https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20251208/1765177077155914.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg) The Eurozone has exceeded economic growth expectations in 7 out of the past 11 quarters. The ECB's previous forecasts indicated that economic growth would slow to 1% next year, before rebounding again in 2027. Schnabel stated, "Since then, the outlook has become more optimistic." Data released last Friday already showed that the performance in the third quarter was better than initially expected. Observers will focus on the inflation portion of the ECB's upcoming latest economic forecasts (which will include projections up to 2028 for the first time) to assess whether falling below the 2% inflation target may be worse than previously thought. A major concern in the market is the potential delay of the EU carbon pricing system, which could exert downward pressure on inflation in 2027. Schnabel downplayed these concerns, believing that as long as there are no signs of sustained deviation, the ECB can tolerate "moderate target deviations." She stated, "It is important not to be bound by a specific number. What truly matters is the overall macroeconomic narrative, which reveals how the economy and inflation will evolve over time." She added that while inflation is currently "in a good position," service prices remain the "most important" challenge, largely stemming from rising wages ![23.png](https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20251208/1765177068331619.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg) Core inflation pressures in the Eurozone remain stubborn At the same time, the impact on core inflation is smaller than feared due to the strengthening euro, cheaper energy prices, and downward pressure on commodity prices from potential trade shifts. Schnabel stated, "This means that during a period of economic recovery, with the output gap closing and fiscal policy expanding—factors that typically have inflationary tendencies—the decline in core inflation has stalled. This must be monitored very carefully." Schnabel declined to comment on analysts' predictions regarding the timing of the European Central Bank's next interest rate action, with some betting on a rate hike as early as June next year. She said, "This is not something we are considering at the moment. The ship will naturally straighten when it reaches the bridge." Looking ahead, Schnabel emphasized that the European Central Bank must closely monitor whether long-term phenomena—such as changes in economic potential and the impact of artificial intelligence—will make the originally appropriate monetary policy setting too loose. She stated, "We must monitor whether our policy becomes more accommodative over time, and it may even become too loose, at which point we would need to consider adjusting interest rates again." ![24.png](https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20251208/1765177063794416.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg) Regarding the European Central Bank's balance sheet, Schnabel stated that the process of allowing maturing bonds to naturally reduce is proceeding "smoothly," and stable money market rates indicate that excess liquidity remains "ample." This contrasts with the United States, where the Federal Reserve has stopped balance sheet reduction this month. Although economists expect the European Central Bank may follow the Federal Reserve's lead in the second half of next year, Schnabel said such predictions are difficult to assess. She stated, "This roughly corresponds to one end of our expected range. The other end of the range is much later." She added that a review of the European Central Bank's future operational framework will begin next year, but it may take until 2027 to complete ## Related News & Research - [ECB’s next move is likely a rate rise, but timing unclear, says Villeroy](https://longbridge.com/en/news/281560167.md) - [Thailand to Hold Off on Interest Rate Hike Despite Inflation Risks](https://longbridge.com/en/news/281627116.md) - [Energy Prices Can Jolt China Inflation, But Relief Likely Fleeting if Demand Stays Weak](https://longbridge.com/en/news/281158005.md) - [St Louis Fed's Musalem: Need to verify the waning of tariff inflation](https://longbridge.com/en/news/281378975.md) - [A Look At Subsea 7 (OB:SUBC) Valuation After Strong Recent Share Price Momentum](https://longbridge.com/en/news/281562282.md)