According to a report, economists expect the European Central Bank to hold steady next week before delivering the final rate hike of this cycle in December. This assessment stands in sharp contrast to market bets that several more hikes are still to come.
December's Final Hike? Economists and the Market Disagree
Surveys show the overwhelming majority of respondents believe the ECB will raise the deposit rate by 25 basis points to 2.75% at its final meeting of 2026, and keep it at that level until May 2028. Traders, by contrast, expect three more hikes over the coming year. The survey results highlight a long-running disagreement: how much force policymakers need to bring consumer price growth back to the 2% target. Although investors are closely watching the sustained rise in oil prices, analysts note the knock-on effects on inflation have yet to fully materialize.
"There is still no sign that energy inflation is feeding into broader wage and price setting," said Rabobank economist Bas van Geffen. "The ECB does not need to accelerate its hiking cycle and can wait until December to act."
In response to the war with Iran, the ECB has already raised rates twice, in June and September. Although inflation has quickened, reaching 3.8% last month, output has proven more resilient than most expected. ECB officials want to prevent the energy shock from becoming embedded in the economy, and considered another hike this month. Still, the likelihood of maintaining a quarterly pace of increases is greater, with new projections due at the December meeting. The ECB's September outlook projected GDP growth of 0.9% this year and 1.4% in 2027, with consumer prices rising 3% and 2.5% respectively. Under an adverse scenario, inflation is expected to reach 3.1% and 3.2%.
With oil prices surpassing $110 a barrel, more than two-thirds of economists believe the eurozone economy is performing worse than the September baseline scenario.
"The longer overall inflation stays elevated, the harder it becomes to ignore second-round effects on wages, prices and expectations," said Dennis Shen, a lecturer at the Berlin campus of ESCP Business School. "For the ECB, an inflation overshoot is now a much bigger medium-term risk than an undershoot."
French Bond Yields Break 5%: Will the ECB Step In?
Beyond the Middle East situation, policymakers are assessing how much rising bond yields are tightening financial conditions. ECB President Christine Lagarde and others believe this will dampen economic growth and limit the pass-through of energy into inflation. With France's benchmark bond yield touching 5% this week for the first time since 2002, some investors even see the risk of a new euro debt crisis. The market is speculating on how much worse conditions must get before the ECB deploys its unused emergency tool, the Transmission Protection Instrument (TPI). Economists believe the bar is very high: 70% of respondents ruled out any form of intervention, and about 90% ruled out the TPI. The TPI is designed to address unwarranted, disorderly market dynamics that threaten monetary policy transmission in the eurozone.
"Rising bond yields can be well explained by stronger global demand for capital and deteriorating public finances in many countries," said Karsten Junius, chief economist at Bank J Safra Sarasin. "In this situation, it is hard for the ECB to find a justification for using the TPI."
Some economists believe the ECB could take less aggressive measures, such as verbal intervention, signaling a dovish rate path, or halting quantitative tightening.
"As long as France is unwilling to save itself, the ECB can do very little to help France right now," said Carsten Brzeski, global head of macro at ING. "With the bond market taking over the ECB's role, the only thing the ECB can do is sound more dovish and try to talk down rate hike expectations."
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