In a recent blog post on the Irish Central Bank’s website, European Central Bank (ECB) policymaker Gabriel Makhlouf warned that additional interest‑rate increases could damage economic growth. Makhlouf highlighted two major sources of uncertainty: the ongoing conflict in the Middle East and the potential impact of further monetary tightening.
Energy prices and inflation remain a concern
Makhlouf noted that “the near‑term driver of elevated inflation remains energy.” He explained that a drawn‑out conflict in the Middle East could keep energy prices high for an extended period, sustaining inflationary pressures across the euro area.
Risks of aggressive rate hikes
While the ECB raised borrowing costs for the second time this year on Thursday, Makhlouf cautioned that “raising rates a great deal more from here could carry real costs in terms of growth.” He stressed that policymakers must balance the need to tame inflation with the risk of slowing the region’s economic recovery.
Policy outlook
Sources close to the ECB told Reuters that officials expect further policy tightening in the coming months, with a possible rate move as early as October. However, Makhlouf’s comments suggest that the central bank is aware of the trade‑off between price stability and growth.
“There remains significant uncertainty to the outlook,” Makhlouf wrote. “The other side of uncertainty is that raising rates a great deal more from here could carry real costs in terms of growth.”
Implications for businesses and households
If the ECB proceeds with additional hikes, borrowing costs for businesses and consumers could rise, potentially slowing investment and spending. At the same time, higher rates are intended to anchor inflation expectations, which could benefit households by preserving purchasing power in the longer term.
European leaders and market participants will be watching upcoming ECB meetings closely to see how the bank navigates these competing pressures.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
