Deutsche Bank says markets came away from the European Central Bank’s September meeting more convinced that policy rates have reached their peak. The ECB avoided any firm forward guidance, but its tone suggested growing comfort with 2% as a long-term policy rate. This stance, in the bank’s view, gives the central bank room to absorb economic uncertainty, tolerate short-term volatility, and even accept some deviation of inflation from its 2% target.
Market pricing following the meeting reflected less risk of further cuts, which Deutsche Bank says aligns with its baseline. The firm had already shifted its outlook to a 2% terminal rate after the EU-US trade deal was announced. While there is still a possibility of further easing, especially if inflation expectations weaken during the undershoot projected for early 2026, Deutsche Bank believes the bar for more cuts has risen significantly.
In its baseline scenario, the ECB’s next policy move would not be another cut but rather a hike at the end of 2026. “The hurdle to further policy easing feels higher after this meeting,” the bank noted, reinforcing its view that the ECB is now at the terminal rate.
This article was written by Eamonn Sheridan at investinglive.com.