ECB’s Cipollone dismisses stagflation fears, inflation outlook stable

The European Central Bank’s board member, Cipollone, stated there are no current signs of stagflation in the euro area, while maintaining that inflation remains elevated. His comments come as the ECB’s projections show headline inflation at 3.0% for 2026, declining to 2.3% in 2027. This statement follows the ECB’s recent policy rate hikes, aimed at curbing persistent inflation pressures. Market participants appear to interpret Cipollone’s reassurance as supportive of maintaining current rates, suggesting a reduced likelihood of imminent rate cuts by the Federal Reserve. Market pricing in the “Fed Decisions from July to October” scenario appears to have reacted modestly to Cipollone’s statements. The odds for the Federal Reserve to implement a “Pause–Cut–Pause” strategy in the upcoming meetings are currently low, with a 1% probability. These odds have remained relatively stable, suggesting that participants may view the ECB’s stance as an indicator that the Fed will also hold rates to combat inflation. Key Takeaways Cipollone’s comments appear to reduce concerns about stagflation in the euro area, consistent with stable rate scenarios. ECB projections show a gradual decline in infla...