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Eurozone inflation is now tracking the ECB's milder scenario. Headline was projected at 3.2% in June and printed at 2.8%. A September downward revision makes hiking harder to justify. Lane is still citing second-round effects and pushing to raise the neutral rate range.

The June ECB hike is described as a mistake, but an understandable one. Decades of Bundesbank legacy still shape decision-making. Add the impossibility of using transitory after the last cycle, and the awkward MOU timing, and the hike is what came out.

Lagarde defended June's hike as justified by ECB inflation projections, not precautionary. She also acknowledged falling oil prices and Middle East de-escalation have made risks more balanced. Bank research says that weakens the case for a July follow-up hike that had been well priced.