Lagarde says ECB will stay calm and act meeting by meeting

The ECB president said rates and energy prices do not move in lockstep, pointing instead to growth and consumption as the real drivers of policy.

European Central Bank President Christine Lagarde said the bank would keep a calm reaction to current conditions, calling energy an important factor while stressing that rates and energy prices do not move in lockstep. She pointed to growth and consumption as the real drivers of policy, and said the bank was ready to act, handling decisions meeting by meeting. She also said there is no sign of second round inflation effects.

Her remarks came a day after two of her fellow policymakers struck a more watchful tone. ECB board member Olli Rehn said on Thursday that the inflation picture has shifted since the bank's comfort zone. Governor Gabriel Makhlouf said the same day that every meeting is live and that inflation risks skew higher.

Traders are currently pricing four ECB rate increases through the end of 2027. JP Morgan this week revised its own forecast, now expecting a hike in December followed by another in March 2027, reversing its previous call for rates to stay on hold through 2027. Euro-area households, meanwhile, raised their inflation expectations in the ECB's monthly survey, to 3.0% for the one-year horizon and 2.9% for three years, both up from July.

The euro fell to $1.1474 on Wednesday, and sterling to $1.3387, as the dollar firmed after the Federal Reserve's rate decision. Lagarde's language keeps all options open while acknowledging uncertainty around energy and growth, matching the cautious tone from Rehn and Makhlouf rather than signalling any shift in policy. That leaves markets holding to their bet on four increases through 2027, with Makhlouf's warning that growth risks could offset inflation concerns still hanging over the outlook.