The ECB, meanwhile, is entertaining its first pause since it started hiking a year ago.

“We have an open mind as to what the decisions will be in September and in subsequent meetings,” ECB President Christine Lagarde told journalists, adding “we might hike [or] we might hold.”

Rate cuts are not on the table, however. “That is a definite no,” Lagarde said.

Several analysts pointed to a subtle change in the ECB’s language compared with June. The bank said this month that rates will be “set at,” rather than “brought to,” sufficiently restrictive levels.

“This hints that today’s hike could be the last, but it is by no means certain,” Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said in a note.

European economy weakening

Recent evidence suggests the euro area may be stuck in recession, bolstering the case for a pause.

Demand for business loans fell to a record low in the second quarter, according to a survey published by the ECB Tuesday. The report also found that banks had tightened credit standards further across all loan categories.

Separately, survey data released Monday showed that business activity in the eurozone contracted at the fastest pace in eight months in July.

An initial reading of the Purchasing Managers’ Index, which tracks activity in the manufacturing and service sectors, dropped to 48.9 from 49.9 in June. A reading below 50 indicates a contraction.

“Manufacturing continues to be the Achilles heel of the eurozone,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, which produces the research in partnership with S&P Global.

“The eurozone economy will likely move further into contraction territory in the months ahead as the services sector keeps losing steam.”

Gross domestic product figures for the second quarter due out Monday will confirm whether the euro area is still in a recession.

Consumer prices in the region rose 5.5% in June compared with a year ago — a sharp slowdown from a record 10.6% in October 2022 but still well above the ECB’s 2% target.

Core inflation, which strips out volatile food and energy prices, inched down only slightly, suggesting that “underlying inflation has … plateaued,” Commerzbank senior economist Marco Wagner said in a note Wednesday.

With core inflation higher in the euro area but interest rates “substantially lower” than in the United States, Capital Economics thinks the ECB will deliver one more rate hike but that the Fed’s tightening cycle is now over.