The European Central Bank raised its key interest rate to 2.25% for the first time since 2023. ECB President Christine Lagarde warned that the labor market is showing signs of weakening, adding a note of caution to the decision.
First rate hike in over a year
The quarter-point increase ends a pause that began after the last rate change in 2023. The move was widely expected as inflation has remained above the ECB's 2% target. Lagarde said the decision was made with the aim of bringing price growth back to target.
Lagarde's labor market warning
Speaking at the press conference in Frankfurt, Lagarde pointed to softening conditions in the eurozone labor market. “We are seeing some weakening in labor market expectations,” she said. The remark suggests the ECB is balancing inflation concerns with risks to employment.
The central bank's updated staff projections show lower growth and slightly higher inflation for the coming quarters. Lagarde emphasized that future decisions will depend on incoming data, not a predetermined path.
Markets are now pricing in a possible pause at the next meeting. Lagarde declined to give explicit forward guidance but said the council remains data-dependent. Whether the labor market weakness will force the ECB to hold steady or act again remains an open question.
