What officials are weighing

European Central Bank policymakers are leaning toward more tightening, said people with knowledge of the talks, who requested anonymity because they were discussing private conversations. Their stance still depends on incoming data, but they flagged that firmer policy may be needed with inflation stuck above 3%. Those people also said market expectations for three more hikes could be too bold and suggested December might be the better moment to raise borrowing costs, since that gathering will include new forecasts that run through 2029. A spokesperson for the ECB declined to comment.

Markets already moved

Traders quickly marked up the likelihood of an October increase to 70% from just over 50% earlier. In rates, Germany's two-year yield - the bellwether for policy sensitivity - increased by 14 basis points to 3.21%, its highest reading since 2023. The euro erased its drop and was last at 1.1630 against the dollar. Investors are now fully factoring in three more quarter-point steps by the end of 2027, leaving a small tail risk of a fourth.

Energy, inflation, and Lagarde

Officials face an energy shock linked to the Iran war that has driven inflation to its near three-year peak.

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Hawks, forecasts, and the math

Economists are leaning into the higher-for-longer theme. Bloomberg Economics' David Powell and Simona Delle Chiaie wrote that the hawks want to keep going and, given the ECB's view of neutral, they see the deposit rate needing to reach at least 2.75%. Jefferies' Modupe Adegbembo still prefers a December hike, though she says October is possible if energy stays hot. For everyday savers, the takeaway is simple: markets are already bracing for tighter policy, and the data between now and December's forecast update will likely set the tone for how far the ECB actually goes.

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