--- title: "Isabel Schnabel: Monetary policy in a world of overlapping shocks · Sep 30, 2026" description: "Schnabel uses this speech to defend the two hikes since June and to kill the \"look through the energy shock\" argument outright: a supply shock that lifts…" source: Helious canonical: "https://helious.io/news/0e2cad19cee1da33962ef4f6c78df9a4/isabel-schnabel-monetary-policy-in-a-world-of-overlapping" --- ECB 30 Sept 2026, 15:45 UTC # Isabel Schnabel: Monetary policy in a world of overlapping shocks ## SPEECH DIGEST HAWKISH medium confidence · 23.3k characters read Schnabel uses this speech to defend the two hikes since June and to kill the "look through the energy shock" argument outright: a supply shock that lifts the projected inflation path warrants a response, and the June move was "the optimal response", not insurance. The live content is the September projection set, where headline falls to 2.1% by 2028 but core is projected to rise to 2.6% in 2027 before easing to 2.3%, still above target. She adds that since the 19 August cut-off, oil and gas have moved toward the adverse scenario and that household inflation expectations have risen above pre-conflict levels. The net signal is hawkish: cuts look distant, and the ECB's own risk distribution on inflation is skewed up. **What’s new: **The framework argument (respond to supply shocks, lean on underlying inflation) is a restatement of Schnabel's well-aired view and is priced. Genuinely new is the projection detail: core to 2.6% in 2027 before 2.3% in 2028, a cumulative 1pp upward revision to HICP ex-energy against the December 2025 round, and the explicit statement that oil and gas have shifted toward the adverse scenario since the 19 August cut-off. The household expectations update and the line that financial conditions are "not yet restrictive" are also fresh. One dovish caveat sits in the text: some models imply stronger transmission than the staff projections assume. ### KEY FINDINGS - Since the projections’ cut-off date, oil and gas prices have moved closer to the adverse scenario, implying a larger and more persistent deviation of inflation from our 2% target. The risk skew around the September baseline is to the upside, which argues against pricing near-term cuts. - HICP inflation excluding energy and food is expected to rise to 2.6% in 2027 before falling to 2.3% in 2028, hence remaining above 2%. An above-target core profile into 2028 keeps the ECB on hold at best and supports a hawkish hold, not easing. - ECB staff have revised up projected HICP inflation excluding energy by a cumulative one percentage point owing mainly to indirect effects and, to a lesser extent, second-round effects. Pass-through is the swing variable: if indirect and wage effects materialise as assumed, the cut timeline gets pushed out further. - After the start of the conflict, medium- and longer-term household inflation expectations moved up and continue to stand above pre-conflict levels. Rising household expectations are the trigger Schnabel names for a more forceful response, so this is the key tail risk for the front end. - The recent robust credit dynamics suggest that financial conditions are not yet restrictive or that parts of lending have become less sensitive to interest rates as expected returns have risen. Undercuts the dovish case that policy is already tight enough, and points to a higher neutral rate keeping the floor under yields. ### FROM THE DOCUMENT Since the projections’ cut-off date, oil and gas prices have moved closer to the adverse scenario, implying a larger and more persistent deviation of inflation from our 2% target. The projections also foresee an increase in core inflation. HICP inflation excluding energy and food – one measure of underlying inflation – is expected to rise to 2.6% in 2027 before falling to 2.3% in 2028, hence remaining above 2%. Overall, compared with pre-conflict projections, ECB staff have revised up projected HICP inflation excluding energy by a cumulative one percentage point owing mainly to indirect effects and, to a lesser extent, second-round effects, as employees are expected to ask for some compensation for their loss in purchasing power (Slide 9). In any case, the recent robust credit dynamics suggest that financial conditions are not yet restrictive or that parts of lending – particularly related to AI investment – have become less sensitive to interest rates as expected returns have risen. Inflation is back and weighing once again on people’s everyday lives. Just as the euro area was putting the post-pandemic inflation surge behind it, new shocks have hit. For monetary policy, this sequence of shocks poses challenges. It can affect the behaviour of households and firms, the formation of inflation expectations and, ultimately, the persistence of inflation. [1] The ECB has adapted to this shock-prone environment in two ways. First, as of 2023 we have made our monetary policy framework more transparent by laying out our reaction function – that is, the factors that the Governing Council uses to determine the appropriate monetary policy stance: the inflation outlook and the risks surrounding it, the dynamics of underlying inflation and the strength of monetary policy transmission. ECB President Lagarde has referred to this as “framework guidance”. [ Read the full ECB speech at the source →](https://www.ecb.europa.eu//press/key/date/2026/html/ecb.sp260930_1~7c6c120482.en.html) Copy link [Follow this live on the Helious desk →](https://helious.io/)