ECB’s Simkus says September rate hike ‘not going to be enough’

European Central Bank policymakers on Tuesday reinforced expectations that the bank will raise interest rates at its September 10 meeting, though they diverged on how much further tightening may be needed as the eurozone navigates persistent inflation driven in part by elevated oil prices and Middle East tensions.

Šimkus Says One Hike Won't Be Enough

ECB Governing Council member Gediminas Šimkus told Econostream Media that a September rate increase is all but certain — and that it will not be the last. "All the data currently available lead me to think that it's very likely that we will hike, and that this September hike is not going to be enough," the Lithuanian central banker said in an interview published Tuesday. Šimkus added that new ECB staff projections are likely to push the rate path higher.fxstreet+1

The comments mark an escalation from Šimkus's stance in late July, when he told Lithuanian radio that a hike was "much more likely" than a hold but stopped short of suggesting additional moves beyond September.econostream-media

Markets have largely priced in a quarter-point increase that would bring the ECB's deposit rate to 2.50% from the current 2.25%, where it has stood since a June hike that was the bank's first tightening since 2023. A Reuters poll published in mid-August found that most economists expect the September move to be followed by an extended pause through at least mid-2027.Investinglive+2

Nagel Strikes a More Measured Tone

Bundesbank President Joachim Nagel offered a somewhat more sanguine view on the same day. According to comments reported by Reuters, Nagel said the global economy remains "on a growth path" despite the Middle East crisis and welcomed the easing in core and services inflation, noting that he is "not seeing second-round effects on inflation". He also remarked that the use of the euro in recent U.S. and Japanese foreign-exchange interventions involving the yen was discussed at the G20.mitrade

Fresh data released Tuesday showed eurozone headline consumer prices rose 0.4% month-on-month in August, up from 0.2% in July, while core prices ticked up 0.2% after being flat the prior month.fxstreet

Mixed Signals Weigh on the Euro

Despite the hawkish ECB rhetoric, EUR/USD struggled to find buyers on Tuesday, trading around 1.1590 and down roughly 0.2% on the day. The dollar held firm after U.S. ISM manufacturing data came in softer than expected — the PMI fell to 54.6 from 55.6 — but did little to shake expectations that the Federal Reserve could raise rates at its own September meeting. Fed Governor Michael Barr warned Tuesday that "if inflation doesn't moderate soon, it will be time for an interest rate hike," while the CME FedWatch Tool showed roughly 66% odds of a Fed hike on September 15-16.mitrade+1

Attention now turns to Friday's U.S. nonfarm payrolls report and the ECB's September 10 decision, where policymakers will have updated forecasts to guide what could be one of the most consequential rate calls of the year.