ECB Executive Board member Isabel Schnabel, widely known for her hawkish stance, has shifted her tone, adding to growing signals from other officials that the central bank is preparing for a 25bps rate cut this month.

Schnabel acknowledged in a speech overnight the “headwinds to growth,” pointing to weakening labor demand and progress in disinflation. She noted that a “sustainable fall of inflation back to our 2% target in a timely manner is becoming more likely,” despite persistent inflation in services and strong wage growth.

Schnabel also highlighted that while the peak impact of monetary tightening is likely behind us and real incomes are rising, the recovery remains fragile. “Growth remains shallow,” she said, with the recovery repeatedly falling short of expectations over the past 18 months.

In separate remarks, Governing Council member Mario Centeno, a known dove, warned of the “new risk” of inflation undershooting the ECB’s target.

Centeno cautioned that this could “stifle economic growth,” leading to fewer jobs and reduced investment. A sluggish economy, he said, could create a “vicious cycle,” further driving inflation below the target and compounding economic challenges.

In a speech today, ECB Vice President Luis de Guindos acknowledged that Eurozone growth was weaker than expected in Q2, leading to a downward revision in the growth outlook for the region. He added that risks to growth remain “tilted to the downside”.

Despite this, de Guindos expressed optimism for the future, expecting the recovery to “strengthen over time”. He cited rising real incomes and the waning impact of restrictive monetary policy as key factors that should bolster consumption and investment. Additionally, he pointed to boost in exports as global demand improves, contributing to the recovery.

Full speech of ECB’s de Guindos here.

ECB Governing Council member Martins Kazaks indicated that recent data “clearly point in the direction of a cut” in interest rates at the upcoming October meeting. Kazaks highlighted the increasing risks to the Eurozone economy, noting that the balance between stubborn inflation, particularly in services, and weak growth is tilting toward the latter.

He emphasized that even after another 25bps cut, which would bring the deposit rate to 3.25%, the rate would still “restricts economic activity” and curb inflation in the services sector.

Kazaks expressed concern over the “worrying” state of the economy, especially the potential for a sudden weakening of the job market. “If corporates start to shed labor, this snowball may start rolling,” he cautioned, warning of the risks of a tipping point that could exacerbate economic decline.