ECB rate hike endgame debate: Economists expect a December finale, while the market bets on three more hikes.

Economists expect the ECB to hold steady next week before delivering the final rate hike of this cycle in December. That view stands in sharp contrast to market bets that several more hikes are still to come. December Final Hike? Economists and Markets Disagree Surveys show the vast majority of respondents believe the ECB will raise the deposit rate by 25 basis points to 2.75% at its final meeting of 2026, and keep it at that level until May 2028. Traders, by contrast, expect three more hikes over the next year. The survey results highlight a long-standing divergence: how much force policymakers need to bring consumer price growth back to the 2% target. Although investors are closely watching the sustained rise in oil prices, analysts note that the knock-on effects on inflation have yet to fully materialize. "There is still no sign that energy inflation is feeding through to broader wage and price setting," said Bas van Geffen, an economist at Rabobank. "The ECB does not need to accelerate the hiking cycle and can afford to wait until December." To respond to the Iran war, the ECB has already raised rates twice, in June and September. Even as inflation accelerated to 3.8% last month, output has proven more resilient than most expected. ECB officials want to prevent the energy shock from becoming embedded in the economy and considered another hike this month. However, maintaining a quarterly pace of hikes remains more likely, with new projections due at the December meeting. The ECB's September outlook projected GDP growth of 0.9% this year and 1.4% in 2027, with consumer prices rising 3% and 2.5% respectively. Under an adverse scenario, inflation is expected to reach 3.1% and 3.2%. With oil prices above $110 a barrel, more than two-thirds of economists believe the euro-area economy is performing worse than the September baseline scenario. "The longer headline inflation stays elevated, the harder it becomes to ignore second-round effects on wages, prices and expectations," said Dennis Shen, a lecturer at Berlin's International Management Institute. "For the ECB, an inflation overshoot is now a much bigger medium-term risk than an undershoot." French Bond Yields Break 5%: Will the ECB Step In? Beyond the Middle East situation, policymakers are assessing how much rising bond yields are tightening financial conditions. ECB President Lagarde and others believe this will dampen economic growth and limit the pass-through of energy into inflation. With French benchmark bond yields touching 5% this week for the first time since 2002, some investors even see the risk of a new euro debt crisis. The market is speculating on how bad conditions would have to get before the ECB deploys its unused emergency toolthe Transmission Protection Instrument (TPI). Economists see a very high bar: 70% of respondents rule out any form of intervention, and about 90% rule out the TPI. The TPI is designed to address unwarranted, disorderly market dynamics that threaten policy transmission across the euro area. "Rising bond yields can be well explained by stronger global demand for capital and deteriorating public finances in many countries," said Karsten Junius, chief economist at Bank J Safra Sarasin. "In this situation, it is hard for the ECB to find a justification for using the TPI." Some economists believe the ECB could take less aggressive measures, such as verbal intervention, signaling a dovish rate path or halting quantitative tightening. "As long as France is unwilling to help itself, there is very little the ECB can currently do for France," said Carsten Brzeski, global head of macro at ING. "With the bond market taking over the ECB's job, the only thing the ECB can do is sound a bit more dovish and try to talk down rate hike expectations."