Lagarde Defends Moderate ECB Policy Response Amid Rising Euro Zone Inflation

European Central Bank President Christine Lagarde has maintained that the ECB's moderate policy response to inflation remains appropriate. Inflation in the euro zone has exceeded 3% and is expected to reach 4% by year-end, double the ECB's target. This surge in inflation is largely due to surging oil and gas prices stemming from the US-Iran conflict.

Lagarde emphasized that while higher inflation readings are anticipated, there are currently no signs of 'second round effects' taking hold across the euro zone. She also pushed back against some market expectations for more aggressive rate hikes, stating that a measured response is sufficient to keep inflation in check.

Market expectations now include up to four additional rate hikes over the next year, following two increases during the summer. Many economists expect the ECB to skip its October 29 meeting and implement a rate increase in December when new projections are released.