ECB Member Rehn Says Rate Hikes and Bond Yields Helping Tame Eurozone Inflation

Olli Rehn, a member of the European Central Bank (ECB) Governing Council and Governor of the Bank of Finland, stated that the ongoing rise in energy prices in the Eurozone has not yet spread to other goods and services. Speaking to reporters in Helsinki on the 6th, Rehn noted that the recent increase in bond yields is likely to ease inflationary pressure by slowing economic growth.

Eurozone inflation remains well above the ECB's 2% target, and policymakers continue to debate the need for additional rate hikes beyond the two implemented this summer. Rehn emphasized that while inflation risks are tilted to the upside, opposing economic forces must also be considered. He highlighted that higher long-term interest rates are slowing growth and reducing the impact of energy prices on other prices and wages.

Isabel Schnabel, another ECB Governing Council member, warned that the economy might react more strongly than expected to rising borrowing costs, which could help curb medium-term inflation. Bond yields across the Eurozone have reached their highest levels in over a decade, driven by rising U.S. Treasury yields and concerns about fiscal sustainability in Europe.

Rehn did not make specific policy recommendations, maintaining the ECB's approach of not signaling decisions in advance. Financial markets currently expect two to three additional rate hikes, with an 80% probability of a hike by December. He also noted the economy's resilience, partly due to robust investment in artificial intelligence (AI), which some policymakers suggest indicates stronger underlying inflationary pressure.