ECB Has Moved, Fed Is Now Playing Catch-Up

The analysis from Nigel Green comes as the European Central Bank raised its benchmark deposit rate by a quarter percentage point to 2.25%, its first increase since 2023, citing growing inflation risks linked to the war in Iran.

The move follows the release of US inflation data yesterday showing consumer prices rose 4.2% in May, the highest annual rate in three years.

The ECB now expects inflation across the euro area to average 3% next year, well above its 2% target, while growth forecasts have been revised lower as higher energy costs weigh on businesses and consumers.

The deVere CEO argues that the contrast between Europe and the US makes the ECB's decision particularly important.

US inflation has accelerated sharply in recent months, climbing from 2.4% in February to 4.2% in May as energy prices surged following the conflict in the Middle East. Economists increasingly expect inflation to remain elevated through the remainder of the year.

Nigel Green believes investors are underestimating the significance of what is unfolding.

He notes that the ECB has faced criticism in the past for reacting too slowly to inflation pressures and says officials appear determined not to repeat that mistake.

Several economists have described Thursday's move as an 'insurance hike' designed to preserve inflation-fighting credibility before price pressures spread more widely through the economy.

The Federal Reserve now faces an increasingly uncomfortable choice, explains Nigel Green.

He says investors should prepare for a market environment that looks very different from the one many expected at the start of 2026.

The conversation is shifting towards whether rates stay higher for longer and whether additional hikes may still be needed. This changes the outlook for bonds, equities, currencies and risk assets across the board.

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