ECB’s Isabel Schnabel warns of stronger inflation risks post US-Iran peace deal

The bombs may have stopped, but the inflation hasn’t. That’s the core message from Isabel Schnabel, one of the most influential voices on the European Central Bank’s executive board, who is pushing back against the narrative that the US-Iran peace deal will automatically cool prices across the eurozone.

On June 25, Schnabel made clear that despite improved oil prices following the memorandum of understanding between Washington and Tehran, the ECB needs to keep raising interest rates. The conflict’s inflationary damage, she argued, is already baked into the system, and it’s not going away just because tankers can sail through the Strait of Hormuz again.

The peace deal doesn’t fix broken pipelines

Schnabel first laid out this argument on May 26, when she stated the ECB should raise rates in June due to sustained damage to energy infrastructure and supply chains.

The US-Iran memorandum of understanding, signed around June 15-17, was designed to end military operations and reopen the Strait of Hormuz, one of the world’s most critical maritime chokepoints for oil transport. Schnabel’s June 25 remarks emphasized that further tightening is warranted because the conflict’s impacts are too widespread and lasting to simply wave away with a ceasefire agreement.

Unanchored expectations are the real danger

Schnabel highlighted a risk that keeps central bankers up at night: unanchored inflation expectations. This is the scenario where businesses and consumers stop believing that inflation will return to normal levels and start making decisions, setting prices, demanding wage increases, based on the assumption that high inflation is the new permanent reality.

What this means for investors and the crypto market

For anyone with exposure to euro-denominated assets, the message is straightforward: borrowing costs are going up, and they’re staying up longer than the peace deal optimists might hope. An extended tightening cycle from the ECB means higher interest rates on everything from corporate bonds to mortgages.

Schnabel made no reference to digital assets or stablecoins in her inflation warnings, and the broader ECB discussion has remained firmly in the traditional monetary policy lane.

Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy.