ECB account shows markets fully priced in September rate hike
The account, published on 8 October, also records Mr Lane's assessment that the energy shock from the Middle East conflict was creating persistent inflation pressure.
AI illustrationThe account of the European Central Bank's monetary policy meeting of 9-10 September, which the ECB published on 8 October, shows that markets had fully priced in an interest rate hike at that meeting. It records presentations to the Governing Council by Ms Schnabel on financial markets and by Mr Lane on the economy.
Ms Schnabel said persistently high energy prices and concern about higher food price inflation had lifted market expectations for inflation and policy rates. Expectations for the ECB's terminal rate had risen above 3% for the first time in the current hiking cycle. Markets had priced in 84 basis points of hikes in total by the end of 2027, compared with 64 basis points at the time of the July meeting. Respondents to the Survey of Monetary Analysts took a milder view: their median expectation suggested only a final hike, at the September meeting.
Mr Lane said that, six months on, the energy shock set off by the conflict in the Middle East was creating persistent inflation pressure. Oil stood at USD 97 per barrel, 3% higher than at the July meeting, and gas at €73 per MWh, 17% higher. Headline inflation in the euro area rose to 3.3% in August from 2.9% in July, according to a flash estimate from Eurostat. Energy price inflation climbed to 14.3% from 10.3%, and the flash estimate showed food price inflation unchanged at 1.2%.
Indirect effects had so far stayed contained, he said, with no material signs of second-round effects. Negotiated wage growth eased to 2.4% in the second quarter, broadly in line with the ECB's wage tracker.
ECB staff projections from September see headline inflation averaging 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028, revised up from the June projections by 0.2 percentage points for 2027 and 0.1 percentage points for 2028. Excluding energy and food, the projections show inflation at 2.5% in 2026, 2.6% in 2027 and 2.3% in 2028. Mr Lane said the upward shift in the path of energy prices was likely to keep headline inflation well above target into the first half of 2027. After that, energy inflation should fall and turn negative up to mid-2028, pulling headline inflation lower.
Ms Schnabel also pointed to rising concern about the increased leverage of AI companies, a significant share of it off-balance sheet, though direct euro area exposure to that leverage remained limited.