Why JPMorgan AM and Pictet Are Betting Against Multiple ECB Rate Hikes

The Economic Case Against Aggressive Tightening

The foundation of this contrarian bet is a critical diagnosis of the current inflation. The firms argue the recent spike is not a sign of an overheating economy but a temporary, supply-side shock.

• Weak Underlying Growth: The eurozone economy is fragile. ECB staff projections forecast economic growth of only 0.9% in 2026, a level too sluggish to generate significant demand-pull inflation . This makes a series of rate hikes, which would further dampen economic activity, a dangerous and unnecessary risk.
• Inflation is Energy-Driven, Not Demand-Driven: Headline inflation in the eurozone jumped to 3.0% in April 2026, with energy price inflation accelerating to a sharp 10.9% year-on-year . The contrarians correctly attribute this to the war in Iran, which has pushed oil prices to multi-year highs and strained supply chains . They view this as a classic cost-push shock that monetary policy is poorly equipped to address and which will likely fade if geopolitical tensions ease.

The Geopolitical Catalyst and Historical Parallels

The conflict in the Middle East is the proximate cause of the inflation scare and the looming ECB hike. The disruption has created a stagflationary impulse—pushing up prices while simultaneously threatening growth . State Street Global Advisors, in a note expressing a similar caution, advised the ECB to stay its hand until the July meeting to get "much more clarity on the sustainability of recent oil prices" .

Underpinning this caution is a fear of repeating past monetary policy mistakes. The contrarian camp points to historical precedents where the ECB tightened into a supply-side price shock only to see inflation fade amid a broader economic crisis. The examples of 2008, during the global financial crisis, and 2011, at the onset of the eurozone debt crisis, serve as powerful cautionary tales against premature tightening .

Market Data: A Field of Overpriced Bets

The contrarian view is a direct bet against current market positioning.

• Consensus Pricing: As of early June, markets were pricing in an almost 90% probability of a 25-basis-point hike at the June meeting, with a total of about 75 basis points (three hikes) expected by year-end . Polymarket traders, meanwhile, priced the probability of a June hike at 76.5% .
• Bond and Equity Market Implications: If JPMorgan AM and Pictet are correct, the current hawkish market pricing is an opportunity. A single hike followed by a long pause would cause eurozone bond yields to fall from their current highs as the market unwinds its rate-hike expectations . Separately, JPMorgan strategists have noted that equity markets have generally overpriced the risk of central bank rate hikes, creating a potential rebound opportunity in defensive sectors like consumer staples and utilities .