The ECB’s recent 25-basis-point hikes in June and September 2026, lifting the deposit facility rate to 2.50%, reflect persistent inflation pressures from the Middle East conflict and elevated energy prices. Staff projections place headline inflation at 3.0% for 2026 and 2.5% for 2027, well above the 2% target, with core measures also revised higher. This path, alongside a resilient euro-area economy showing 0.9% growth expected in 2026, has driven market-implied odds against any rate cut this year to 95.5%. Traders price in further tightening or a prolonged hold rather than easing. Tail risks include a swift de-escalation in energy markets or a sharper growth slowdown that could prompt an earlier pivot, though current data and guidance make such shifts improbable before year-end.