By David Barwick – FRANKFURT (Econostream) – Despite the weekend and the May 1 holiday in almost all euro area countries, a third of the European Central Bank’s Governing Council has spoken publicly since President Christine Lagarde’s press conference on Thursday. The message has come across: June is very live.

That doesn’t mean a June rate hike is a done deal. But post-meeting communication has underscored that the April hold was a pause to let evidence accumulate, not a sign of comfort or complacency.

The common thread is that policymakers need to judge whether the Middle East energy shock remains a relative price shock, painful but ultimately temporary, or whether it is turning into a broader inflation process via producer prices, supply chains, wages and expectations. If it is the latter, then June—with updated macroeconomic forecasts and six additional weeks of data—is an obvious candidate for the first countermove.

Bundesbank President Joachim Nagel was most explicit. From today’s perspective, he said, the situation is evolving less favorably than in the earlier baseline scenario, making it “all the more appropriate” for the Governing Council to respond in June if the outlook does not improve markedly.

Eesti Pank Governor Madis Müller, though he will leave office before the June 11 meeting, was hardly less direct. The ECB had not needed to raise rates yet, but it was increasingly likely that it would have to do so, he said. Higher longer-term market rates helped justify waiting for now, but that tightening of financing conditions could not indefinitely substitute for actual central bank action, he cautioned.

Bank of Finland Governor Olli Rehn, normally dovish, said that the next six weeks would bring the ECB to a “crossroads”: either the conflict looks prolonged and inflationary, or an early-summer resolution eases pressure on prices and growth alike.

Austrian National Bank Governor Martin Kocher, too, made clear that the ECB is ready to adjust policy quickly and decisively if necessary. Bank of Slovenia Governor Primož Dolenc said the Council would re-examine the situation at coming meetings as more data became available and the course of the war became clearer. Central Bank of Ireland Governor Gabriel Makhlouf said he was concerned about a higher-for-longer energy price scenario and would monitor indirect effects through production, transportation and services, as well as inflation expectations.

Bank of Greece Governor Yannis Stournaras added to the guardedly hawkish tone, saying the ECB’s response would depend on the intensity, duration and transmission channels of the shock, and that a “robust” response would be needed if inflation deviated significantly and persistently from target. But he also made clear that such a response was not automatic, saying there were currently no signs of significant pass-through from higher energy prices into inflation.

ECB Vice President Luis de Guindos, who like Müller will also exit before June 11, supplied the main note of restraint, observing that the current situation is not a repeat of 2021 or 2022. The ECB should keep a cool head, he said, given that the fiscal, monetary and demand conditions that fueled the previous inflation surge are not present in the same way now.

That intellectual justification explains why the ECB did not hike on Thursday despite a worse inflation backdrop, higher energy prices and a clear shift in the balance of risks. But the hold, as we noted at the time, was not an exercise in relaxation.

Rather, the post-meeting message is conditional hawkishness: we can wait because the evidence on broader pass-through is still incomplete, but the longer energy prices remain elevated, the less comfortable waiting becomes.

As it stands now, therefore, April was for observation, while June is for judgment. But there is an important cautionary note: we have been here before, namely right after the March meeting, at which the ECB also stood pat.

After Lagarde’s March 19 press conference, initial Governing Council comments also made the next meeting sound live. Nagel said at the time that a more restrictive stance would “probably” be necessary if the medium-term inflation outlook deteriorated and inflation expectations rose on a sustained basis. Makhlouf said the April meeting was “live” and that he could understand why markets were pricing two rate hikes this year. Dolenc pointed to alternative scenarios in which a prolonged war, stronger second-round effects and no policy response could push medium-term inflation higher. National Bank of Slovakia Governor Peter Kažimír said the ECB would act “with appropriate decisiveness” if inflation risk persisted.

At the time, we argued that the post-Lagarde communication reinforced April hike risk, which it did. But it didn’t take long for the Council to retreat from any sense that April was becoming the default. Policymakers continued to keep the meeting live, but the communication shifted toward patience, uncertainty and the need to distinguish between a headline energy shock and a persistent inflation process.

So, June is for judgment, but post-meeting hawkishness can overstate the eventual appetite to move. June could yet turn into what April ultimately became: a live meeting that still ends in a hold, especially if the conflict comes to a durable end soon.

At the same time, the ECB is already six weeks deeper into the shock than it was in March, let alone where it will be by June 11. Energy prices have already lifted inflation, financial markets have repriced, and policymakers are explicitly focused on indirect pass-through, expectations and wages. Weaker growth indicators argue for caution, but the longer the conflict drags on, the harder it will be for the Council to justify waiting without compromising the ECB’s credibility.

That is why we expect June to bring a 25bp hike, though it could still become “the new April” if the conflict is lastingly resolved soon or growth weakens profoundly. This is a real risk.

As for the possibility of something larger than 25bp, the Governing Council’s obvious reluctance to act precipitously means that, for 50bp to happen, seriously alarming developments would probably have to materialize quickly. Short of an actual emergency, even clear further deterioration of inflation prospects would more likely lead to another 25bp of tightening in July, so no intervening evidence-gathering hold, than to a 50bp move in June.

Barring such a worrisome state of affairs, it is not clear yet whether, following a 25bp hike next month, the ECB would decide to monitor the evolution of data over the summer before assessing the possible need to hike yet again. There remains an underlying reluctance to cause economic harm that is not absolutely unavoidable, so a sharp worsening of growth indicators could easily postpone a second hike—if it comes to one—to September.