Macro · Weekly Economic Monitor Viewpoint

Key arguments

• ECB raised its three key rates by 25bp and revised growth and inflation projections upward; the staff's September projections implicitly suggest that even with official rates at 3%, inflation could end up marginally above target in the baseline scenario.
• Intesa Sanpaolo expects the ECB to pause at least until the December 2026 projection review, keeping rates stable at current levels, because its own inflation projections are lower than the ECB's and it is less concerned about second-round effects; risks are entirely one-sided to the upside and market pricing (3.00-3.25%) aligns with the ECB reaction function in certain scenarios.
• The FOMC (15-16 September) decision is a close call: August employment, PPI and CPI data are consistent with a 0.3% m/m core PCE deflator, a labor market and prices backdrop that suggests an immediate move, and alternative Taylor rule formulations support at least one hike by year-end; 12 voting members could split 6-6, making Warsh's vote decisive. Even a pause would merely postpone a hike.
• A BoJ rate hike to 1.25% on 18 September is all but a foregone conclusion, driven by U.S.-Japan yen intervention, Washington's demands, a more restrictive Board stance and waning resistance from the Takaichi administration; Intesa Sanpaolo expects a pause through year-end, then hikes to 1.50% in January and 1.75% in June, reaching 2% by end-2027.
• The BoE is the least likely of the four major central banks to hike imminently: the majority ties tightening to second-round effects that are virtually nonexistent, with July inflation at 2.9% y/y driven by utility bills (-6.6% to +5% y/y) and fuel prices up 15.5% y/y, while services inflation slowed to 3.4% and regular private-sector wage growth of 2.8% y/y is the slowest since 2020.
• Euro area Q2 GDP growth was revised up two-tenths to 0.6% q/q (1.2% y/y), entirely attributable to Ireland; excluding Ireland, growth held at 0.3% q/q, in line with potential. July hard data were weak (German IP -1.1% m/m; French IP -0.4% m/m) but partly distorted by one-offs, while Italian IP rebounded 0.7% m/m; Intesa Sanpaolo forecasts euro area IP -0.1% m/m in July with a one-tenth downward revision to June to -0.1% m/m.
• Global public debt sustainability is eroding fast: after fifteen years of ever-cheaper refinancing, every year of issuance adds to the interest bill, central bank ammunition remains largely spent, and sovereign balance-sheet capacity to absorb the next recession is the thinnest in twenty years; growth is the only durable escape, though no debt crisis is on the horizon.

Corresponding source evidence

1. The ECB announced a second rate hike, as expected: we anticipate a pause at least until December, because our inflation projections are currently lower than those of the ECB, and we are less concerned about second-round effects; however, the risks are all on the upside.
2. Next week, the BoJ, BoE, and Federal Reserve will also meet: a rate hike by the Bank of Japan appears a foregone conclusion, while the Bank of England is likely to opt to remain on hold for now. · next week
3. As widely expected, the ECB announced a 25-basis-point increase in its three key interest rates , accompanied by an upward revision of both growth and inflation forecasts.