Morgan Stanley revised their forecast for ECB rates to 4% as they expect core inflation to peak much higher than previously expected. "The much later peak in core inflation is the catalyst for new ECB rate hikes in the coming months," said Managing Director Jens Eisenschmidt. "Our new inflation trajectory suggests that the ECB will face a rise in core inflation at the May meeting," he added.
ECB Governing Council member Pierre Wunsch gave a similar comment, remarking that bets on interest rates peaking at 4% could be accurate if underlying price pressures remain elevated. "If we don't get clear signals that core inflation is coming down, we will have to do more," he noted. "It is not out of the question to consider rates of 4%, but I want to insist that I will not draw any conclusions about where rates should go without seeing a change in underlying inflation."
