- The European Central Bank (ECB) announced an increase of 25 basis points in three key interest rates, marking the first rate hike in three years. The deposit facility rate rose to 2.25%, with unanimous approval from the committee. The ECB also raised its 2026 inflation forecast to 3.0% but hinted that future policy would shift to a wait-and-see approach.
- The U.S. Producer Price Index (PPI) for May climbed to 6.5% year-on-year, reaching its highest level since November 2022. The market is closely watching next week's Federal Reserve System (Fed) policy meeting, chaired by Walsh, and potential institutional reforms.
- The Bank of Japan (BOJ) is expected to follow the global tightening trend at next week's rate meeting, raising the benchmark rate by 25 basis points to 1.0%. The repricing of liquidity by major global economies is causing increased short-term financial market volatility.
ECB Initiates First Rate Hike in Three Years
At its June policy meeting, the European Central Bank raised the marginal lending rate, main refinancing rate, and deposit facility rate by 25 basis points each, reaching 2.65%, 2.40%, and 2.25%, respectively. This marks the bank's first rate hike in three years, with all committee members agreeing to the decision. The ECB's policy statement highlighted that geopolitical risks in the Middle East are injecting uncertainty into the inflation outlook. Considering potential imported inflation pressures, the ECB raised its overall inflation forecast for 2026 from 2.6% to 3.0%, predicting that inflation levels may not return to the official long-term target of 2.0% until the second half of 2027.
Labor Market Supports Policy Wait-and-See Stance
Despite the upward revision of short-term inflation expectations, ECB officials emphasized that the current macroeconomic environment is fundamentally different from the inflation peak in 2022. Labor demand within Europe is further cooling, and wage growth is expected to slow over the next year. Policymakers have not observed secondary effects of a wage-price spiral at this stage. Since this rate hike is not the start of an aggressive policy cycle and there has been no discussion of neutral rates or ranges, the market generally expects the ECB to enter a policy observation period after this action, with no predetermined path for future interest rates.
U.S. Producer Price Index Exceeds Expectations
As the ECB announced its rate hike, data from the U.S. Department of Labor showed that the year-on-year growth rate of the Producer Price Index for May rose to 6.5%, significantly higher than the previous value of 5.7%, marking the highest level since November 2022. The core PPI growth rate remained stable at 4.9%. Price pressures from the supply chain continue to transmit to the consumer side, bringing inflation back to the forefront of market concerns. This data adds uncertainty to the upcoming Federal Reserve System monetary policy meeting, which will feature the first policy event chaired by the new chairman, Walsh.
Global Central Bank Shifts Trigger Market Reassessment
In addition to the major central banks in Europe and the U.S., the Bank of Japan is also expected to raise its benchmark rate by 25 basis points to 1.0% at next week's meeting and may announce further reductions in government bond purchases. As the attitudes of the three major global central banks shift towards tightening, the international financial market's funding environment is undergoing profound repricing. If core inflation indicators in major economies continue to rise due to geopolitical factors or demand-side rebounds, global multi-asset market pricing models may face a comprehensive reassessment, with short-term market volatility likely to increase.
