European Central Bank Is Expected To Launch “Jumbo” Rate Hikes Due To Inflation

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European Union - Mika Baumeister via Unsplash
European Union - Mika Baumeister via Unsplash

Analysts expect the European Central Bank to launch aggressive series of rate hikes and sacrifice growth thanks to the rising cost of living, which is threatening to soar even higher. 

ECB Executive Board Member Isabel Schnabel’s speech in Jackson Hole hinted at what to expect from the upcoming policy meeting. With inflation in the eurozone projected to skyrocket to at least 10% in the coming months and the risk of consumer prices surging higher, a “jumbo” rate hike of 75 basis points on Thursday is certainly a possibility.

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“As frontloaded hikes can have a bigger impact on inflation expectations than a more gradual approach, a 75bp move could make sense,” said ECB watcher and Berenberg’s Chief Economist Holger Schmieding in a research note. 

“Although it is largely priced in, it could still exacerbate strains in the bond markets.”

Inflation in the eurozone rose to 9.1% in August, and with more pressure on energy prices, it’s set to reach double-digit levels in the coming months.