European Central Bank (ECB) President Christine Lagarde left the door open for a potential interest rate hike in September during her regular press conference following today’s (23 July 2026) decision to hold the ECB’s key interest rate steady. Financial markets now assign significant odds to a second increase before the end of 2026.
Energy shock and inflation outlook
Lagarde stressed that the conflict in the Middle East and persistently high energy prices could keep inflation elevated for an extended period. Businesses expect to raise their selling prices, while wage growth remains moderate. She noted that underlying inflation — which excludes volatile items like energy and food — continues to be contained.
“The energy crisis continues to fuel price increases. Input costs for businesses are rising, leading them to anticipate higher prices for goods and services. At the same time, developments in underlying inflation have remained subdued. The full effects of the energy crisis have not yet materialised,” Lagarde said, highlighting data from the ECB’s Wage Tracker and wage expectation surveys, both of which point to only modest wage growth over the coming quarters.
The ECB will continue closely monitoring energy price trends and their implications for inflation and economic activity, maintaining its data-dependent approach to policy decisions.
Eurozone economy: Resilient but weighed down
On the broader eurozone economy, Lagarde observed a partial recovery in the services sector, with digital services proving particularly resilient — largely driven by advances in new technologies and artificial intelligence. Manufacturing activity has also maintained its momentum.
“Forward-looking indicators suggest economic growth will remain modest in the near term, weighed down by the energy shock and associated uncertainty. However, the fundamentals underpinning medium-term growth remain intact: private consumption is strong; investment in digital technologies continues; defence and infrastructure spending remains elevated; and a rebound in exports is expected to support overall growth potential,” she said.
The Governing Council reiterated its call for urgent action to bolster the eurozone economy while preserving sound public finances.
Lagarde confirms she won’t step down before 2027
When asked about the possibility of an early departure, Lagarde declined to commit to a specific timeline for stepping down from her role at the ECB — but made it clear she would not leave before the end of this year. “You won’t see me leave before 2027,” she told journalists, though she left the door open to remaining beyond that date.