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The European Central Bank is widely expected to raise interest rates on June 11. What happens after that is where the real disagreement begins.
JPMorgan Asset Management and Pictet Asset Management are both calling the anticipated hike a “one and done” move, arguing that the eurozone’s sluggish economy simply cannot absorb a sustained tightening cycle. That puts them squarely at odds with a market that has priced in 75 basis points of total rate increases by year-end.
The case for restraint
The ECB’s deposit facility rate currently sits at 2.00%, unchanged since the central bank’s last meeting on April 30. A 25-basis-point bump would nudge it to 2.25%. JPMorgan AM, which laid out its view on June 7, argues that even this small step may be all the ECB can justify given Europe’s economic trajectory.
Pictet goes further. Along with French asset manager Carmignac, it has suggested the ECB could reasonably hold rates steady altogether, skipping a hike entirely.
Inflation, driven partly by geopolitical tensions linked to the Iran conflict, is the reason markets are expecting more aggressive action. Energy prices and supply chain disruptions have kept price pressures elevated, giving hawks on the ECB’s governing council ammunition to push for a more assertive stance.
What the consensus says
The “one and done” camp is firmly in the minority. A Reuters poll conducted between May 29 and June 3 found that more than 60% of economists expect a follow-up 25-basis-point increase in September, after the June hike. That would bring the deposit rate to 2.50% before the end of summer.
Markets have gone even further, pricing in a total of 75 basis points of tightening by December. That implies three quarter-point hikes, a pace that would push the deposit rate to 2.75%.
The gap between these two views is significant. If JPMorgan AM and Pictet are right, markets are currently overestimating tightening by 50 basis points.
For context, the ECB spent most of 2024 and early 2025 cutting rates as post-pandemic inflation cooled. The pivot back toward tightening represents a meaningful shift in the central bank’s stance, driven by the resurgence of inflationary pressures.
What this means for investors
The divergence between these forecasts creates a tactical puzzle. If the consensus is correct and the ECB delivers multiple hikes, eurozone bond yields will likely climb further and the euro could strengthen against the dollar and other currencies. Fixed-income portfolios heavy on European government bonds would face headwinds.
If the “one and done” thesis plays out, bond prices would stabilize or rally as traders unwind their rate hike bets. The euro might soften. And risk assets, including equities and crypto, could benefit from the absence of sustained monetary tightening.
The spread between what JPMorgan AM expects and what the market has priced in is wide enough to generate meaningful volatility regardless of who turns out to be right. Traders positioned for three hikes will need to adjust quickly if the ECB signals restraint. And those betting on “one and done” will face pain if inflation data forces the central bank’s hand toward continued tightening.
Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy.
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