The June meeting of the Governing Council of the European Central Bank is approaching, in a context of increased geopolitical uncertainty and renewed inflationary pressures. The latest interviews given by two key representatives of the institute – the chief economist Philip Lane and the member of the Executive Board Isabel Schnabel – have consolidated the belief among operators that the pause in monetary tightening is now close to its end.
The picture that emerges is that of a central bank close to reactivating the restrictive cycle, with an unknown no longer on “if” but on the intensity and subsequent trajectory, in a context that Schnabel herself described as characterized by downward risks for growth and upward risks for inflation: in a word, stagflation.
Schnabel sees no other “option” than a rate hike
In his most recent contribution, Schnabel told Reuters that given the size and persistence of the ongoing shock, ignoring it is no longer an option, and that from today’s perspective a rate hike in June will be necessary. The particularly clear position is based on the evidence that inflation has already risen to 3% and, according to market expectations, could approach 4% by the end of the year, with oil prices placed above the March baseline scenario. The German representative, considered a potential successor to Christine Lagarde as president, also noted that, beyond June, the ECB should not make binding commitments and should reassess its position at each meeting based on data(4).
Lane’s condition
The position of the chief economist is more complex. Philip Lane did not make an explicit statement, but listed the conditions that could push the Board to raise rates starting from June, warning in particular of the risk of unanchoring expectations. According to the Irish economist, the most insidious danger is that European citizens stop believing that the ECB will bring inflation back to 2% and start considering a higher level as the new normal, also because the memory of 2022 – when inflation exceeded 10% – is still fresh.
Analysts’ expectations
Investor consensus has progressively hardened. Financial markets have now fully priced in two increases in the deposit rate, currently at 2%, and attribute a probability of around 50% to a third move within the year. In contrast, economists remain more cautious, assuming two hikes followed by a cut in mid-2027. On the investment house front, RBC BlueBay’s Neil Mehta expects a hike in both June and September, given the ECB’s single mandate on price stability. However, dissonant voices remain present: the outgoing vice president Luis de Guindos has invited colleagues to maintain a cautious attitude in view of the next decision, considering the progressive slowdown in economic growth.
