Markets see a near 50-50 chance the European Central Bank will hike again in October

By Steve Goldstein

European Central Bank President Christine Lagarde stressed the uncertain outlook in her post-decision press conference.

Financial markets are now virtually evenly divided on whether the European Central Bank will again lift interest rates next month after a statement issued Thursday that was perceived as being hawkish.

The ECB's decision on Thursday to lift rates by a quarter point to 2.5% was expected. But now, according to LSEG data, there's a 49% chance of a hike as soon as Oct. 29 - and if not then, an 89% chance of one by Dec. 17, with a 36% chance the deposit rate will be 3% heading into Christmas.

The ECB staff lifted their inflation forecasts for 2027 and 2028, citing inflationary pressures caused by the conflict in the Middle East, and boosted their GDP growth forecasts for 2026 and 2027, citing "greater than expected resilience of the euro area economy."

The ECB said the outlook remains highly uncertain, a point President Christine Lagarde tried to convey in her post-decision press conference.

She said uncertainty is such that conditions could change overnight - citing rising diesel prices as one example. "We simply cannot anticipate what exactly will be the next move," said Lagarde.

The 2-year German bund yield BX:TMBMKDE-02Y rose 9 basis points, but so did the yield in government bonds outside the eurozone, with the U.K. 2-year BX:TMBMKGB-02Y up 10 basis points and the U.S. 2-year BX:TMUBMUSD02Y up 8 basis points.

-Steve Goldstein

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09-10-26 0958ET