Persistent energy price pressures from the Middle East conflict have driven euro area headline inflation to projected averages of 3.0% in 2026, prompting the ECB to raise its deposit rate twice this year to 2.50% as of September, with further tightening expected by December. ECB staff projections revised inflation higher for 2027–2028 while noting resilient growth of 0.9% in 2026, reinforcing a data-dependent, restrictive stance without pre-commitment to easing. Market-implied odds reflect this hawkish trajectory, as traders price limited scope for cuts amid upside inflation risks and stable long-term expectations. Tail risks include a sharp reversal in energy prices or sharper growth slowdown that could accelerate normalization, though such scenarios remain low-probability given current forward guidance.