On Friday (May 9), Isabel Schnabel, a member of the Executive Committee of the European Central Bank, warned that the global trade war could push up inflation in the euro zone, limiting room for further interest rate cuts.

Schnabel, one of the six-member ECB executive committee panelists, has a hawkish policy stance, and she gave a speech at Stanford on Friday.

Schnabel said the rise of protectionism and the surge in defense spending in Europe (particularly Germany) meant policymakers needed to "keep a solid stance and keep interest rates at current levels nearby."

Since June last year, the ECB has cut interest rates seven times in a row, reducing deposit rates from 4% to its current 2.25%.

"If tariffs continue and significantly increase, coupled with the pressure from increased fiscal spending in the medium term, these factors may further drive up core inflation," Schnabel said in his speech.

U.S. President Trump announced the so-called reciprocal tariffs earlier last month, and then announced a 90-day suspension of the implementation of the vast majority of countries and regions, but still maintains a 10% benchmark tax rate. At present, the United States is using this period to negotiate with major trading partners.

As a traditional ally of the United States, the EU has been imposed by Trump on a 20% reciprocal tariff. European Commission President von der Leyen said this week that the EU is “preparing for all possible situations”.

Her remarks challenge the growing dovish consensus among current economists and investors that the ECB will cut interest rates by another 25 basis points at its June meeting. Overall, the market expects that there will be two to three interest rate cuts of similar magnitude by the end of this year.

In fact, long before Trump announced reciprocal tariffs, Schnabel called for the need to suspend interest rate cuts.

Some people believe that the trade war initiated by Trump may curb rather than drive higher consumer prices in the euro zone. In this case, the ECB should increase monetary policy easing to prevent inflation from falling below the 2% target in the medium term.

However, Schnabel said that in the medium term, rising fiscal spending and the impact of tariffs on supply chains mean that inflation risks are "more likely to be upward."

European Central Bank President Lagarde said in April that the "net impact" of the tariff war on inflation will "become clearer over time." She also said at the time that the trade dispute had a "negative demand shock" that would have a "certain impact" on the economic growth of the euro zone.

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