ECB's Schnabel says the central bank must act early to prevent second-round effects - investingLive

European Central Bank board member Isabel Schnabel has stressed the importance of acting early to prevent second-round effects from taking hold. Her remarks point to the ECB’s growing concern that inflation, initially driven by energy and supply shocks, could become embedded through wage bargaining and price-setting behavior.

Second-round effects occur when workers seek higher pay to offset rising living costs, prompting firms to raise prices further—a wage-price spiral. By tightening policy before these dynamics become entrenched, the central bank hopes to avoid a more abrupt and costly correction later. Schnabel’s emphasis signals a hawkish tilt, with policymakers willing to front-load rate moves to anchor inflation expectations.

For markets, the comments reinforce expectations that ECB rates will stay elevated for longer. This typically supports the euro and pushes short-term bond yields higher, while pressuring interest-rate-sensitive sectors. Investors will watch upcoming wage data and the ECB’s next meeting for clues on whether early action translates into an accelerated pace of rate hikes.