The European Central Bank's current rate-hiking campaign may be drawing to a close. A recent Reuters poll indicates that a vast majority of economists anticipate a final 25-basis-point increase on September 10, after which the bank is expected to pause. If this materializes, the tightening cycle would consist of just two hikes, making it the shortest since 2011.

The survey, conducted between August 31 and September 3, found that all 65 economists polled expect the deposit rate to be raised to 2.50%. Among them, approximately 91% foresee the rate holding at that level until the end of the year, with 78% predicting it will remain unchanged at least until mid-next year.

Despite rising tensions in the Middle East and a notable climb in global bond yields over the past week, economists largely believe the ECB is unlikely to tighten policy further given the pressure on the Eurozone economy. While inflation remains above the 2% target, there is a growing consensus among markets and policymakers to view it as a temporary shock driven by higher energy prices.

Consensus Builds for September Hike, but Divergence Remains on Next Steps

Expectations for a September move have solidified considerably in recent months. Before the July policy meeting, only 72% of respondents predicted a hike in September. That figure rose to 83% in August and stands at 100% in the latest poll. However, economists and interest-rate futures markets still disagree on the subsequent path. Futures pricing currently factors in a third increase, whereas the surveyed economists generally expect the bank to hold steady after the September action.

Carsten Brzeski, global head of macro at ING, argues that with strained public finances and rapidly rising bond yields, the ECB would find it difficult to justify further tightening. He notes that in the face of a typical supply-side shock, additional rate increases could paradoxically heighten the risk of an economic downturn.

Inflation Creeps Higher, but Energy Remains the Driving Force

The Eurozone's headline inflation rate ticked up to 3.3% in August, moving further away from the ECB's 2% objective and providing justification for a September rate rise. Yet, the survey shows that most economists believe the surge in energy prices will not yet translate into broader inflationary pressures, a key reason markets are betting on a pause after September.

Pia Fromlet, an economist at SEB, suggests that inflation is expected to gradually ease back towards the target next year, although upside risks have clearly intensified.

The poll revised its average inflation forecast for 2026 up to 2.9%, marking the largest upward adjustment since 2022. Projections for the current and next quarters were also raised to 3.2% and 3.3%, respectively, from 3.0% and 3.2%. Core inflation is expected to remain relatively sticky in the coming quarters, potentially delaying the return to the 2% target until the end of 2027.

A Two-Hike Cycle Poised to Be the Shortest in 15 Years

If the bank pauses after September, the current tightening cycle will have included only two rate increases, making it the briefest since 2011.

This scenario bears a striking resemblance to 2011, when the ECB also raised rates twice amid an oil price surge, a sequence later viewed by many policymakers as a misstep.

The current hiking cycle began in 2022 in response to record inflation fueled by factors including the conflict in Ukraine, prompting the central bank to launch its most aggressive tightening campaign in decades. Now, with inflation once again driven by energy prices, halting after a September hike would signal a more cautious approach to supply-side shocks. Prioritizing the avoidance of over-tightening and reducing the risk of a hard landing for the economy appears to be a more significant policy consideration.