ECB Schnabel's speech titled "The euro area inflation outlook: a scenario analysis" provides an unsurprisingly cautious outlook for monetary policy from one of the most hawkish Executive Board members. She continues to advocate for policy to “proceed gradually and cautiously”, particularly as rates approach “the upper band of estimates of the neutral rate”.

• ECB-dated OIS price 66bps of easing through the remainder of this year (vs 67bps earlier), after French/Dutch flash inflation also printed slightly higher than consensus.
• The alternative scenarios Schnabel explores in her speech are all hawkish-leaning (i.e. they would imply a slower rate of policy easing than the current baseline).
• In particular, she discusses higher than expected unit labour costs, stronger wage pass-through and the impact of geopolitical uncertainty/protectionism.
• Schnabel also appeared to somewhat downplay financial market’s concerns around a deteriorating Eurozone growth outlook: “While risks to growth have increased, a soft landing still looks more likely than a recession”.
• She warned that “While monetary policy has to avoid unnecessary pain, it must also avoid overreacting to volatile financial market expectations".