Average Duration From Last Hike To First Cut In Past Hiking Cycles Since 1993*
The European Central Bank (ECB) hiked its policy rate by 25 basis points this week, the first major central bank to raise rates amid the oil price shock. At the press conference, ECB President Lagarde called the move obvious and sensible “when you have the latest [inflation] reading at 3.2% [and] when you have the inflation outlook over…[our] target throughout most of 2027.” We are not so sure the data justifies the hike. First, headline inflation is rising on higher oil prices, but core inflation shows little acceleration, and moderating wage growth in the euro area should also limit any future pass-through. Second, in our view, an oil price shock is more of a growth drag. In turn, higher rates will further dampen euro area growth, which already slowed sharply in the first quarter of 2026. Third, while short-term inflation expectations have risen, medium- and long-term expectations remain well anchored. Finally, in three of its four hiking cycles, the ECB tightened prematurely in response to higher energy prices, only to reverse course within months —the fastest about-face of any major central bank on average. Will this time be different?
