ECB’s Cipollone dismisses stagflation fears, inflation outlook stable

The European Central Bank’s board member, Cipollone, stated there are no current signs of stagflation in the euro area, while maintaining that inflation remains elevated. His comments come as the ECB’s projections show headline inflation at 3.0% for 2026, declining to 2.3% in 2027. This statement follows the ECB’s recent policy rate hikes, aimed at curbing persistent inflation pressures. Market participants appear to interpret Cipollone’s reassurance as supportive of maintaining current rates, suggesting a reduced likelihood of imminent rate cuts by the Federal Reserve.

Market pricing in the “Fed Decisions from July to October” scenario appears to have reacted modestly to Cipollone’s statements. The odds for the Federal Reserve to implement a “Pause–Cut–Pause” strategy in the upcoming meetings are currently low, with a 1% probability. These odds have remained relatively stable, suggesting that participants may view the ECB’s stance as an indicator that the Fed will also hold rates to combat inflation.

Key Takeaways

• Cipollone’s comments appear to reduce concerns about stagflation in the euro area, consistent with stable rate scenarios.
• ECB projections show a gradual decline in inflation, suggesting a similar approach might be expected from the Federal Reserve.
• Current market pricing reflects a low likelihood of the Fed cutting rates in the near term, supportive of a “Pause–Pause–Pause” outcome.

What to Watch

Market participants will be closely monitoring upcoming Federal Reserve meetings and statements from key figures such as Fed Chair Kevin Warsh. Indicators such as U.S. inflation data and employment figures will be crucial in assessing potential rate changes. Any significant deviation in U.S. core inflation or employment metrics could impact the Fed’s decision-making process and alter market probabilities for rate cuts. The next significant update is expected during the September FOMC meeting, where new projections and guidance will be provided.

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Disclosure: This article was edited by Estefano Gomez. For more information on how we create and review content, see our Editorial Policy.