ECB's hawkish stance prompts calls for further rate hikes
TLT•Goldman, Citi and Barclays see more ECB tightening
Goldman Sachs, Citigroup and Barclays are forecasting the European Central Bank will tighten policy further as a renewed surge in energy prices raises concerns over inflation easing back towards target.
The central bank on Thursday raised policy rates by 25 basis points as expected and projected that inflation would remain above the 2% target for an extended period.
Energy prices and Middle East conflict worsen the outlook
The six-month-old Middle East conflict has worsened the euro zone's inflation and growth outlook, while renewed hostilities between the United States and Iran have pushed crude prices above $100 a barrel, threatening fresh upward pressure on consumer prices.
While Goldman Sachs, Citi and Barclays say the ECB will raise rates again in December, Citi expects an additional hike in March 2027.
"The longer inflation remains high, the more pronounced the risks that it becomes endogenous," Citi economists said.
Policy remains data-dependent as traders price in another hike
The ECB has raised borrowing costs aggressively over the past several years in an effort to curb inflation, though officials have increasingly stressed that policy decisions will remain data-dependent. The central bank meets again on October 29.
Barclays said the ECB's "no-brainer" rate hike highlighted policymakers' continued focus on taming inflation, which the central bank does not expect to return to target until late 2027. Goldman Sachs said a December rate hike would push rates into "mildly restrictive territory".
Traders are pricing in a 93.9% chance of a quarter-point rate hike from the ECB in December, according to LSEG data.
Attention is also turning to next week's much-anticipated Federal Reserve and Bank of Japan meetings, which could add to the global tightening backdrop if policymakers signal higher rates for longer.
