Economists Shift Stance, Expecting ECB Rate Hikes Within Months

MaticHoleFiller · 2026-03-20T20:17:46+00:00

The European Central Bank may plan to raise interest rates in the coming months amid the Middle East situation and rising inflation pressures. Market forecasts suggest that the first rate hike could occur in April or June, although some economists believe the pace of rate increases might slow down. In the long term, slower economic growth could lead to rate cuts again in the future.

MaticHoleFiller

2026-03-20 20:17:46

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The European Central Bank’s pause now seems more like a prelude to action. Recently, economists from JPMorgan Chase, Morgan Stanley, and Deutsche Bank have adjusted their forecasts, gradually aligning with market expectations that interest rate hikes could begin within a few months. This shift is driven by ongoing tensions in the Middle East and increasingly hawkish statements from policymakers, both of which heighten the risk of inflation deviating further from the target. Although the ECB has maintained interest rates for the sixth consecutive meeting, officials are reportedly prepared to act if inflation pressures continue to intensify after April 30.

The market debate has shifted from whether to raise rates to the pace of hikes. JPMorgan expects rate increases in April and July, while Morgan Stanley and Deutsche Bank favor a slower schedule, with hikes in June and September. Deutsche Bank economist Mark Wall estimates that rates could rise to around 2.5%, which he considers the upper limit of the neutral rate, indicating that policymakers remain committed to price stability without significantly hampering growth. This view aligns with Joachim Nagel’s statement that if inflationary pressures intensify further, policymakers may need to consider tightening as soon as next month.

The market is already digesting this shift. Money markets currently price in two 25 basis point hikes this year, with the first possibly as early as April, and a greater than 50% chance of a third hike before year-end. Looking further ahead, some economists believe this tightening cycle may eventually be reversed. Morgan Stanley forecasts that, as economic growth slows, the ECB could begin cutting rates again by 2027, while JPMorgan Chase expects a more limited reversal. For investors, the situation is evolving rapidly: what once seemed like a steady pause may be transitioning into a conditional tightening cycle, with geopolitical risks increasingly influencing policy directions.

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