JPMorgan analysts expect the European Central Bank to raise its policy rate for a third time at the December meeting, taking the headline rate to 2.75%. The firm also sees a "near‑certain" second hike to 2.5% at the Governing Council meeting scheduled for next week.
According to the projection, the 2.75% level would remain unchanged throughout 2027, with any rate‑cutting cycle postponed until 2028. While a fourth increase as early as March is priced by markets, JPMorgan does not include it in its base case.
The outlook reflects several drivers. ECB officials have linked monetary‑policy decisions closely to the ongoing Middle‑East conflict, noting that a de‑escalation would temper hawkishness, while continued tensions keep policy on the tighter side. European natural‑gas prices are expected to stay high through the winter, reinforcing the view of an energy‑supply shock as a net hawkish factor.
On the growth front, euro‑area activity has outperformed JPMorgan's pre‑war forecasts, reducing the perceived cost of additional tightening. Conversely, core inflation remains sticky, buoyed by technology‑related price pressures and persistent wage growth, which the bank believes will not ease by December.
Neutral‑rate estimates have also shifted. ECB staff previously anchored the neutral rate near 2%, but at least two Governing Council members have hinted that the estimate could be moving toward a 2.25%‑2.5% range. Under this higher neutral rate, a third hike would place policy only mildly restrictive.
The ECB's recent communications support a more flexible stance. The June rate increase was stress‑tested against a milder scenario, while minutes from the July meeting suggested future moves may not need to meet the same stringent criteria.
JPMorgan's forecasts underscore the balance the ECB faces between supporting solid growth and anchoring inflation expectations amid geopolitical uncertainty and elevated energy costs.
