Overview
- The European Central Bank increased key interest rates by 25 basis points and published projections that show inflation likely staying above its 2% goal for an extended period.
- Major banks and market pricing now point to another 25-basis-point move in December, with Barclays and Goldman Sachs forecasting a December hike and LSEG data showing a very high probability of that outcome.
- Oil and gas prices have climbed above $100 a barrel and hit multi-year highs for European gas, driven by recent U.S.-Iran attacks on energy and shipping, which revives risks of imported inflation for the euro area.
- Bundesbank chief Joachim Nagel and other officials say future decisions are data dependent and that further hikes could push policy from the upper end of neutral into mildly restrictive territory if energy-driven inflation persists.
- Higher rates and the prospect of more tightening mean higher borrowing costs for households and firms, and markets will watch December’s updated ECB forecasts closely for signs of how long inflation and rate pressure will last.