The European economy is holding up, according to ECB President Christine Lagarde. And inflation remains close to 3%: the elements for a new ECB rate increase in September are all there and the markets are discounting it. If it weren't for the fact that global uncertainties are skyrocketing and more than one governor would prefer to wait, as the Fed will probably do when faced with high inflation and diesel at historic highs, but also with worrying shocks to US debt: gold is on the rise again and the US Treasury is preparing a buyback to reassure.
It is the general sense that central bankers carry with them after the hot summer of 2026, amid record temperatures that threaten further inflation, failed peace efforts in Ukraine, and even the risk of escalation in Iran. For the ECB the date is 10 September with an 'off-site' meeting in Berlin.
For the Fed on September 16, with minutes coming today that may say something about the divisions in the monetary policy committee over whether tightening is appropriate by the end of the year.
Lagarde, speaking at a closed-door meeting of the WEF in Geneva this morning, returned to the reforms of the single market.
No signal on rates, except that the economy "continued to grow in 2026 despite the energy shock." GDP at +0.4% in the second quarter, better than expected, indicates resilience to tariffs and energy crises. For Italy, the 12 months to June 2026 gave an improving current account surplus to over 30 billion. For Europe there are 276 billion, albeit down from 303 a year earlier.
In terms of inflation, Eurostat data indicate an acceleration to 2.9% for July from 2.8% in June, with distributor prices largely responsible. The 'core' inflation excluding food and energy, observed specially by Frankfurt, accelerates to 2.5% from 2.4%. Philip Lane, the chief economist who votes in the Council, expects prices to travel at 3% for the rest of the year, and does not hide that the record heat will raise inflation in 2027 through higher food prices. With growth holding up and inflation "way" above the ECB target of 2% - Lane's words - on paper there would be all the elements for a rate increase in September, after that of June to 2.25%. For Olli Rehn, Finnish governor, it is "essential" to avoid a price-wage run-up.
At the ECB, however, several bankers are in favor of prudence.
"We will see the impact of the war later this year," Lane himself said yesterday on Irish radio. The unpredictable risks - including recession - of the prolonged closure of Hormuz have something to do with it. There is a fear of repeating the misstep of Jean-Claude Trichet, who raised rates in 2008 and 2011 only to regret it shortly afterwards. Above all, there are the risks of a violent correction of the AI 'bubble' on the stock markets and global shocks on the debt markets. Just today the US Treasury announced an "enhanced repurchase" of long-term treasuries, after yesterday the thirty-year yields had reached the highest levels of a quarter of a century at 5.33%, dragging Italian BTPs of the same maturity to 4.89%, the highest since 2023. A move by Washington aimed at reassuring us about the huge US public debt, with the massive private debt for AI which now competes with it. It comes after the USA, in order to support the yen, began to buy it in an unusual and unarranged move at the beginning of August, selling euros instead of dollars. Many think that Washington made its decision fearing that Tokyo could dump billions of dollars in Treasuries to support its currency, adding a factor of instability to a market worth over 31 trillion dollars.
