JPMorgan AM Predicts One 25-Point ECB Hike Then Pause on Weak Growth
JPM•JPMorgan Asset Management forecasts a single 25-basis-point ECB rate hike on Thursday, then a pause due to weak euro area growth. Inflation swap rates have fallen from an April peak of 2.40% to 2.12% as Q1 GDP dropped and the euro zone is now seen growing just 0.8% this year.
1. JPMorgan AM Forecasts One-and-Done ECB Hike
JPMorgan Asset Management argues that the European Central Bank will implement a single 25 basis point rate increase at its upcoming meeting before holding rates steady, citing a contraction in euro area GDP for the first quarter and persistently sluggish growth across major economies in the region.
2. Inflation Swap Rates Reflect Eased Expectations
One-year, one-year inflation swap rates have declined from 2.40% in April to 2.12% currently, indicating that markets see less upside to price pressures even as headline inflation remains above target, reinforcing the view that additional tightening may be unwarranted.
3. Weak GDP and Growth Forecasts Support Pause
A sharp downward revision to Ireland’s Q1 output dragged euro area GDP lower than expected, while revised projections now point to just 0.8% growth for the year, strengthening the case for the ECB to avoid a prolonged hiking cycle and limit itself to a single move.
4. Potential Bond Market Rally
If the ECB follows the one-and-done path, government bonds could rally as yields retreat from multi-year highs, reshaping fixed-income allocations and altering funding costs for sovereigns and corporates across the euro zone.
