“Investors risk underestimating the persistence of inflation and the impact of interventions needed to contain it,” said Isabel Schnabel, a senior official at the European Central Bank.
Referring to price pressures and rapid wage increases, Schnabel said, “We are still a long way from declaring victory.”
Stating that the reaction of the economy to interest rate hikes may be weaker than previous periods, Schnabel said, “If this happens, we may need to act more strongly.”
European Central Bank President Christine Lagarde said in a statement that the bank would continue to increase interest rates.
When asked about the expectations of the bank to stop tightening when the interest rate reaches 3.5 percent, Schnabel replied that this might be a very optimistic approach.
Isabel Schnabel, Member of the Board of Directors of the European Central Bank, stated that the markets are priced that inflation will decrease to 2 percent very quickly and said, “There is a risk that inflation will be more permanent than market pricing. Looking at the available data, I think a 50 basis point rate hike in March is reasonable,” he said.