Isabel Schnabel of the ECB discusses the impact of supply shocks, inflation, employment, and AI on monetary policy during the 2026 US Monetary Policy Forum.
Isabel Schnabel, Member of the Executive Board of the European Central Bank (ECB), delivered a speech at the 2026 US Monetary Policy Forum discussing the challenges faced by central banks in the current economic environment.
She highlighted the post-pandemic inflation surge’s effects on societies, especially vulnerable groups, and noted the shift in focus towards growth and employment amid political and institutional pressures.
Schnabel explained that the distinction between a single mandate (price stability) and a dual mandate (price stability and employment) often leads to similar policy responses, especially during demand fluctuations, due to the ‘divine coincidence.’
She emphasized that supply shocks are more frequent today, complicating monetary policy, and that managing inflation requires credible commitment rather than fine-tuning demand.
The speech discussed the risks of supporting employment excessively, which can intensify second-round effects and inflationary pressures, especially in tight labor markets.
Schnabel also addressed the limited effectiveness of expansionary policies in a supply-constrained environment, where supply-side factors like demographic aging and migration influence employment and growth.
Regarding current conditions, she noted euro area inflation is expected to stabilize at 2% over the medium term, but risks remain due to energy prices, tight labor markets, and rising domestic demand.
The potential productivity gains from artificial intelligence (AI) could ease supply constraints and influence the natural rate of interest, but uncertainties and transitional frictions warrant a cautious approach.
She concluded that the ECB’s price stability mandate remains robust, emphasizing the importance of credibility, data-driven policy, and vigilance against upside risks, while recognizing the transformative potential of new technologies like AI.
More information is available at the official ECB press release: ECB official source.
