Goldman Sachs: The ECB
Lower energy prices have reduced headline inflation pressure since the June ECB meeting. But even the ECB staff’s milder scenario points to a persistent inflation overshoot, with core inflation peaking around 2.6% and staying above target through 2028. We therefore use three approaches—Taylor-rule analysis, historical ECB reactions to staff projection revisions, and a macro model—to assess the case for another hike. The evidence is mixed: some approaches imply a weak case for further tightening, while the macro model points to a stronger case for another 25bp increase. The upcoming data is therefore likely to be key. especially on core inflation. We believe that broadly in-line data will be sufficient to convince the Governing Council to hike in September despite lower energy prices, and this remains our baseline. But the hurdle for a hold is low if the data come in weaker and our...
Lower energy prices have reduced headline inflation pressure since the June ECB meeting. 6% and staying above target through 2028. We therefore use three approaches—Taylor-rule analysis, historical ECB reactions to staff projection revisions, and a macro model—to assess the case for another hike. The evidence is mixed: some approaches imply a weak case for further tightening, while the macro model points to a stronger case for another 25bp increase.
The upcoming data is therefore likely to be key. especially on core inflation. We believe that broadly in-line data will be sufficient to convince the Governing Council to hike in September despite lower energy prices, and this remains our baseline. But the hurdle for a hold is low if the data come in weaker and our probability-weighted policy path remains below market pricing.