Schnabel Details ECB Policy Response to Shocks on September 30, 2026

What happened

On September 30, 2026, European Central Bank (ECB) Executive Board member Isabel Schnabel delivered a speech at the 8th Annual EC-EIB-ESM Capital Markets Seminar in Luxembourg, addressing monetary policy in a world of overlapping economic shocks ^[6][16]. Schnabel noted that just as the euro area was moving past the post-pandemic inflation surge, new shocks have impacted the region and influenced inflation persistence ^[6][15].

To address the deterioration in the inflation outlook, the ECB Governing Council raised key interest rates by 50 basis points since June, lifting the deposit facility rate from 2% to 2.5% ^[6][16]. Schnabel emphasized that this action was designed to ensure inflation returns to the 2% target over the medium term ^[6][15]. The central bank utilized transparent framework guidance to communicate its reaction function, which includes the inflation outlook, underlying inflation dynamics, and the strength of monetary policy transmission ^[6][16]. This guidance helps manage market expectations and mitigates excess volatility ^[6][15].

Why it matters

Navigating overlapping shocks presents complex challenges for central banks because new disturbances can hit before earlier price pressures have fully subsided ^[6][15]. Before recent conflicts, headline inflation had returned to target, but residual domestic pressures remained, including services inflation running above 3% and unit labour costs increasing above historical averages ^[6][16].

Schnabel explained that modern macroeconomic models show the optimal policy response depends on the projected path of inflation over the relevant policy horizon, regardless of whether a shock originates from supply or demand ^[6][15]. When a supply shock is large enough to push the projected inflation path above target, tightening monetary policy becomes necessary to prevent higher expected inflation from expanding demand and worsening price pressures ^[6][16]. Higher interest rates restrain aggregate demand, limiting the risk that relative energy price shocks broaden into persistent, economy-wide inflation ^[6][15].

What to watch

Observers will monitor incoming economic data, inflation forecasts, and how households and firms form inflation expectations in response to ongoing supply disruptions ^[6][16]. Key indicators include the trajectory of services inflation, wage growth dynamics, and how smoothly financing conditions continue to transmit ECB policy adjustments across the euro area ^[6][15].

Sources

1. Monetary policy in a world of overlapping shocks ecb.europa.eu
2. Speech By Isabel Schnabel, Member Of The Executive Board Of The ECB, At The 8th Annual EC-EIB-ESM Capital Markets Seminar, Luxembourg, 30 September 2026 mondovisione.com
3. Isabel Schnabel: Monetary policy in a world of overlapping shocks | Kurzy.cz zpravy.kurzy.cz