In a recent interview with Bloomberg, Isabel Schnabel, a member of the Executive Board of the European Central Bank (ECB), spoke about the current state of inflation, the expected interest rate hikes, and the future of the ECB's bond portfolio.
Regarding inflation, Schnabel stated that the ECB is still far from achieving its 2% inflation target, with underlying inflation being higher and more persistent than headline inflation. She also noted that wage growth and profit margins would play a crucial role in the ECB's assessment of underlying inflation and its impact on medium-term inflation.
Regarding interest rates, Schnabel stated that a rate hike by 50 basis points is necessary to bring inflation back to 2% under almost all plausible scenarios. She also mentioned that the ECB is closely monitoring the incoming data to determine the terminal rate and the length of time the restrictive interest rates will need to be maintained.
Finally, regarding the ECB's bond portfolio, Schnabel stated that the bank is currently reviewing its operational framework and is expected to conclude the review by the end of 2023. She also mentioned that the process of quantitative tightening (QT) is gradual, and the bank is still far away from the point where the size of its balance sheet may affect its ability to steer short-term interest rates.