Goldman, Citi, Barclays forecast more ECB hikes after rate rise

The European Central Bank raised its key interest rates by 25 basis points on Thursday, lifting the deposit rate to 2.50% as surging energy prices driven by Middle East tensions keep inflation well above target — and major Wall Street banks are already betting this won't be the last increase.reuters+1

ECB President Christine Lagarde said the governing council remains "committed to setting monetary policy to ensure that inflation stabilizes at our 2% target," while warning that the conflict in the Middle East continues to fuel inflationary pressures. The hike, the ECB's second since the U.S.-Iran war began, was widely anticipated, with swap markets having priced in a roughly 99% probability ahead of the decision.tradingeconomics+2

Wall Street Banks See More Tightening Ahead

Goldman Sachs The Goldman Sachs Group, Inc. ↗ 1.83%, Citigroup ↗ 1.59%, and Barclays ↗ 0.22% are forecasting the ECB will tighten further, with all three expecting another rate increase in December. Citi goes further, anticipating an additional hike in March 2027.devdiscourse+1

Barclays called Thursday's move a "no-brainer" and highlighted policymakers' continued focus on taming inflation, which the ECB does not expect to return to target until late 2027. Goldman Sachs said a December hike would push rates into "mildly restrictive territory".globalbankingandfinance

The hawkish outlook comes as crude oil prices have crossed $100 a barrel, with U.S. crude futures settling 6.7% higher on Thursday at $102.48 amid the biggest spike in attacks on shipping since the Iran war began.cnbc+1

Bond Markets React, Fed Decision Looms

The rate hike landed amid a broader global bond selloff. The 10-year German Bund yield rose close to a 15-year high of 3.439%, while the U.S. 10-year Treasury yield climbed near 4.85%, its highest since October 2023.wsj

As Evelyne Gomez-Liechti, multi-asset strategist at Mizuho, noted in a research note, "the next question is not whether energy prices are high, but whether they generate meaningful second-round effects". She added that while upgraded inflation and growth forecasts were expected from the ECB, "not an outright endorsement of multiple additional hikes beyond September".wsj

Attention now shifts to the U.S. Federal Reserve, where investors have increased bets on a rate hike at next week's meeting following the release of U.S. producer price data for August. Canada's S&P/TSX Composite Index fell 1.1% to a nearly six-week low on Thursday, reflecting the global unease over rising rates and energy costs.reuters