Isabel Schnabel, a member of the Executive Board of the European Central Bank (ECB), has stated that expecting a long – term decoupling of policies between the Federal Reserve and the ECB is misguided. She emphasized that the trade war will likely impact both global demand and supply, and while the net effect on inflation is subject to debate, it will not lead to a sustained divergence in monetary policies.
Impact of Trade War on Inflation
Schnabel acknowledged that the trade war could have both inflationary and deflationary effects, depending on how tariffs are implemented and the extent of retaliation. She noted that the ECB is closely monitoring these developments, as they could influence the medium – term inflation outlook. The ECB’s stance is to maintain a steady hand and keep interest rates near current levels to ensure that monetary policy neither excessively holds back nor stimulates growth and employment.
Policy Implications and Future Outlook
Schnabel highlighted that the ECB needs to focus on the medium term, given the long and variable transmission lags of monetary policy. She suggested that an accommodative monetary policy stance would be inappropriate, as recent inflation data indicate that past shocks may unwind more slowly than anticipated.
By keeping interest rates stable, the ECB aims to evaluate the likely future evolution of the economy and take action if risks materialize that threaten price stability.
Conclusion
Isabel Schnabel’s remarks underscore the ECB’s commitment to maintaining stability in the face of global trade tensions. The expectation is that the impact of the trade war will be felt across the global economy, limiting the scope for significant divergence in the monetary policies of major central banks.
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