ECB Signals Further Rate Hikes as Inflation Fights 'Memory' — The Rate the Planners Cannot Calculate
On 25 June 2026 the European Central Bank published an interview with Executive Board member Isabel Schnabel, conducted by Die Zeit on 19 June, in which she said the ECB "will need to raise interest rates further" to bring inflation back to two per cent. The interview, which discusses second-round effects at length, is the clearest statement of the ECB’s current stance: rates have further to rise, and the path is fog.
What the Story Claims
The story is one of a central bank staying the course. Inflation in the euro area is above target, the labour market is tight, wage settlements are running hot, the Middle East war is pushing energy prices up through the shipping lanes, and Schnabel wants markets to price in more hikes, not fewer. The dominant narrative frames this as prudence — a steady hand on the tiller, a willingness to do what it takes.
The Austrian Diagnosis
This is the calculation problem at the level of monetary policy. Ludwig von Mises (1881–1973), an Austrian economist who spent his career showing that centrally planned economies cannot work, made the original point in 1920: without genuine market prices for capital goods, formed by voluntary exchange, no central office can rationally allocate resources. The prices a planner sets are not prices at all. They are estimates without an underlying price to estimate.
The ECB sets one interest rate for twenty countries with twenty labour markets, twenty housing markets, twenty energy mixes, and one Middle East war. The "right" rate is the price at which the marginal euro of credit equals the marginal euro of saving across every borrower and every saver in the union. No committee can calculate it. The committee can pick a number, communicate it, and adjust it; but the number is not the price. It is the regulator's estimate of a price that does not exist in any exchange.
The inputs to the estimate are dispersed, unverifiable, and shifting in real time. How long does the Hormuz disruption last? What does the German IG Metall wage round deliver in November? Does the AI capex cycle lift productivity enough to offset unit labour costs? What is the equilibrium gas-storage level for next February? These are not facts the ECB knows; they are guesses the ECB must treat as if they were prices. The calculation problem — the impossibility of rational allocation without prices formed by genuine exchange — bites precisely here: even if Schnabel had Friedrich Hayek's (1899–1992), a Nobel-prize-winning economist who argued that no planner can possess the knowledge held by millions of individuals, perfect knowledge of every household balance sheet and every wage contract, she would still face Mises's deeper problem. The price she sets is not derived from exchange; it is administered over exchange.
Mises, Hayek, and the Two Problems
Mises called this the problem of economic calculation under socialism. His student Hayek sharpened it into the knowledge problem — the dispersed, tacit, time-and-place character of useful economic information — and won the Nobel Prize for it in 1974. The two are different. The knowledge problem says central planners cannot know what millions of individuals know. The calculation problem says that even if they knew, they could not turn the knowing into a rational allocation because they cannot compute with administered prices. A central bank setting one policy rate for a heterogeneous currency union is closer to the calculation problem than the knowledge problem: it does not lack information so much as it lacks a price to administer. The number it picks is an estimate. The price is an artefact. The gap between the two is where the errors accumulate.
There is a related point in Eugen von Böhm-Bawerk (1851–1914), an Austrian economist who wrote about time, capital, and why people prefer goods now to goods later, on time preference — the rate at which individuals trade present goods for future goods. The natural rate of interest is the market's revealed preference for present over future, expressed across millions of savings and borrowing decisions. The central bank's administered rate is a substitute for that revealed preference, set by committee. When the administered rate is held below the natural rate, credit expands into longer-and-longer projects; when it is held above, projects are abandoned mid-stream. The distance between the two is the business cycle. Schnabel's "memory" framing — the idea that inflation expectations have become entrenched — is, in Böhm-Bawerkian terms, a symptom of the rate having been held below the revealed time preference of euro-area savers for too long.
Why This Matters for Sound Money
This is the diagnosis at the heart of Part 1 of Rails to Freedom — that the manipulation of the price of credit, not its discovery by markets, is what builds the distortions that crash the next decade. The book's argument is not that central bankers are villains; it is that the rate is a price no central banker can calculate, for the same reason Mises said Gosplan could not calculate the price of steel. The book extends the point into Part 3, where it argues that an on-chain settlement layer — Ethereum — is the first infrastructure in monetary history in which the rate is set by the continuous discovery of price across millions of positions, not by the announcement of a number from a committee. The book calls this emergent process a spontaneous order — the pattern that arises from millions of uncoordinated decisions without anyone designing it.
What Markets Are Already Doing
That infrastructure already exists on the margin. Polymarket, a prediction market built on Polygon (an Ethereum Layer 2), runs a continuously updated probability that the ECB will hike or hold at every meeting — a market-implied rate path priced second-by-second against real positions, not declared once a month in Frankfurt. The market price incorporates war duration, energy curves, wage-round probabilities, AI productivity, and shipping-insurance premia all at once, because traders on both sides of every contract have skin in the seeing. The number is not the ECB's number. It is the price that the inputs produce when they are allowed to meet on a public ledger.
Henry Hazlitt (1894–1993), an American journalist-economist whose book Economics in One Lesson taught generations of readers, would have recognised the discipline of looking at what is seen and what is not seen. The seen: an ECB press conference at which a committee announces a rate. The unseen: a continuous, on-chain, decentralised forecast of that rate, formed by the same dispersed actors whose behaviour the rate is supposed to coordinate. Frédéric Bastiat (1801–1850), a French economist famous for the line "that which is seen, and that which is not seen," would have liked it.
Looking Ahead
Schnabel's "memory" framing is honest in a way most central-bank communication is not. She is admitting that the rate cannot be calculated and that the public should not expect a model that will produce one. That admission is rare. The consequence is that the next rate decision will be a guess, the next move will be a guess, and the cumulative error of the guesses is what the euro area will live with for the rest of the decade.
It does not have to be that way. The price the ECB cannot calculate is being calculated, every minute, by markets that take the other side. Murray Rothbard (1926–1995), an American economist in the Austrian tradition who combined economics with a defence of self-ownership, would have said: the spontaneous order of rate discovery is already here, running on Ethereum, and waiting for the central bank to admit it.