Isabel Schnabel: Navigating stormy waters: reflections on monetary policy

Farewell speech by Isabel Schnabel (who leaves the Executive Board in early January) at the ECB Conference on Money Markets. She sets out four lessons from seven years of monetary policy and her views on the operational framework and the Eurosystem balance sheet.

Key points

• 1) Preserve room for manoeuvre by avoiding commitments: pandemic-era forward guidance was 'too Odyssean'; the main instrument is the policy rates; asset purchases to stabilise markets kept separate from the stance (TPI)
• 2) The response depends on the shock's effect on the inflation path, not on its nature (supply or demand); consumers' medium and long-term inflation expectations have risen and are drifting away from 2% after the energy shock
• 3) Protect monetary dominance in the face of the growth of non-bank intermediation and public debt
• 4) A balance sheet no larger than necessary: the APP and PEPP portfolios can be reduced to zero; marginal liquidity will be provided through standard operations on demand
• Proposed sequencing: first, structural longer-term operations and, once the legacy portfolios have been reduced, a structural securities portfolio
• She considers climate change ('climateflation') part of the price stability mandate

Who is affected

Money markets, banks (liquidity management and use of ECB operations), debate on the operational framework and the succession on the Executive Board

Deadlines

Schnabel leaves in early January 2027

Plain-language version

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