Key facts
- Goldman Sachs, Citigroup, and Barclays expect further ECB rate hikes.
- The ECB raised interest rates by 25 basis points.
- The ECB projects inflation to stay above its 2% target for an extended period.
- Rising crude oil prices above $100 a barrel are worsening the euro zone's inflation outlook.
- Traders are pricing in a 94% chance of a quarter-point rate hike in December.
- UBS expects any December rate hike to be reversed, with rates returning to 2.5% by Q4 2027.
Wall Street banks Goldman Sachs, Citigroup, and Barclays anticipate further interest rate hikes from the European Central Bank following a hawkish policy decision that has amplified concerns about persistent inflation. The ECB recently increased its key interest rate by 25 basis points, projecting that inflation will remain above its 2% target for a prolonged period. This outlook is further complicated by rising global energy prices, with crude oil surpassing $100 a barrel, worsening the inflation scenario for the euro zone. Traders are currently pricing in a 94% probability of another quarter-point rate hike in December. Citi economists noted that the longer inflation stays high, the more pronounced the risks of it becoming endogenous. UBS, while also expecting a December hike, forecasts that these rates will be reversed, returning to 2.5% by the fourth quarter of 2027. Barclays highlighted that the ECB's latest hike, described by President Christine Lagarde as a 'no-brainer,' underscores the central bank's commitment to combating inflation, which is not expected to reach the 2% target until late 2027. Goldman Sachs suggested a December hike would move interest rates into 'mildly restrictive territory.' The ECB has increasingly emphasized that future policy decisions will be data-dependent, with its next meeting scheduled for October 29. Attention is also turning to upcoming meetings of the Federal Reserve and the Bank of Japan for further signals on global monetary policy.