ECB's Schnabel keeps December rate hike option open

European Central Bank (ECB) policymaker Isabel Schnabel has kept the possibility of a December rate hike on the table, even as the case for an October pause strengthens. Schnabel emphasized that while inflation risks remain tilted to the upside, there are no clear signs of second-round effects taking hold yet. Higher energy prices could prolong elevated inflation, but longer-term expectations remain anchored around the ECB's 2% target.

The ECB aims to prevent the temporary energy shock from becoming a persistent issue. With euro area inflation at 3.8% in September, the risks of sustained high inflation are growing. If companies pass on costs more aggressively and workers demand higher wages, bringing inflation back down could become much harder.

For now, Schnabel suggests that the ECB has more room to wait in October, as markets price in a 79% chance of no rate hike that month. However, December remains a different story, with markets pricing in a 66% chance of a rate hike by then. Schnabel's comments hint at a need for patience in October, while keeping December as a potential move.