Isabel Schnabel, one of the European Central Bank’s most hawkish voices and a potential successor to President Christine Lagarde, made her position clear on May 26: the ECB needs to raise interest rates in June. No ifs, no buts, no waiting around for geopolitical breakthroughs.
Even if the US and Iran manage to strike a peace deal, Schnabel argued, the damage to energy infrastructure and global supply chains has already been done.
The inflation problem that won’t quit
Euro zone inflation recently hit 3%, a full percentage point above the ECB’s 2% target.
The ECB’s deposit facility rate currently sits at 2.00%, with the main refinancing rate at 2.15% and the marginal lending rate at 2.40%. Markets are now pricing in at least two rate hikes before the end of 2026, which would push the deposit rate into the 2.75-3% range.
