Isabel Schnabel, member of the European Central Bank’s Governing Council, expressed confidence that the next policy move will likely be a rate hike, citing persistent inflation pressures and strong economic data. Her comments reinforce expectations of a tightening cycle despite recent dovish signals from other policymakers.
- ECB's benchmark interest rate at 4.25% since July 2024
- Core inflation averaged 3.1% in Q3 2025
- Wage growth at 4.5% year-on-year
- 65% market probability of a 25-basis-point hike at December 11 meeting
- German 10-year yield rose to 2.75% following statements
- Euro strengthened to 1.085 against the dollar
Isabel Schnabel, a member of the European Central Bank’s Governing Council, conveyed cautious optimism about future monetary policy decisions during a public appearance in Frankfurt on December 3, 2025. Speaking in a non-public interview, she emphasized that the ECB remains prepared to raise interest rates if inflation dynamics remain elevated, particularly given core inflation readings that have stayed above 3% in recent months. Schnabel noted that while headline inflation has cooled to 2.8%, underlying price pressures remain entrenched, especially in services and non-energy industrial goods. The ECB’s benchmark interest rate currently stands at 4.25%, a level maintained since July 2024 after a series of hikes aimed at curbing inflation. Schnabel underscored that inflation expectations remain well-anchored, which provides the central bank with flexibility to act if necessary. She referenced inflation data from the third quarter, where core inflation averaged 3.1%, and labor market indicators showing wage growth at 4.5% year-on-year—a key concern for policymakers. Markets reacted promptly to Schnabel’s remarks, with the euro strengthening to 1.085 against the dollar and German 10-year bond yields rising to 2.75%. The European Central Bank’s upcoming policy meeting, scheduled for December 11, 2025, is now seen as a decisive moment, with pricing models indicating a 65% probability of a 25-basis-point rate increase. Financial institutions including Deutsche Bank and BNP Paribas have revised their forecasts upward, anticipating a cumulative 75 basis points of rate hikes by mid-2026. The implications extend beyond the eurozone, affecting global capital flows and U.S. Treasury yields, which rose to 4.35% as investors reassessed the relative attractiveness of euro-denominated assets. Financial conditions in peripheral eurozone countries—particularly Italy and Spain—have tightened, with sovereign spreads over German bunds widening by 12 and 8 basis points respectively over the past week.