The ECB raised rates as expected on Thursday.

July marks the one-year anniversary of Christine Lagarde’s hiking campaign, the most aggressive in the institution’s relatively short history.

The policy rate is now 3.75%. Lagarde started in negative territory, of course. With Thursday’s move, the total amount of tightening delivered over the last 12 months is 425bps.

The bank was generally assumed to pursue a 4% terminal rate, but that might’ve changed on Thursday. September’s meeting is a coin toss, according to markets.

The new statement began by saying that “inflation continues to decline,” which is only true if we’re talking about headline inflation. Core inflation in Europe is still near record highs, and June’s print was revised up in the second reading. The ECB acknowledged as much.

“Underlying inflation remains high overall,” the bank said, after employing familiar language in warning that price growth is “still expected to remain too high for too long.”

In Europe, the monetary policy transmission channel is at least functioning. Data released this week suggested demand for corporate loans was the most tepid on record in the second quarter.

“The net decrease was substantially stronger than expected by banks in the previous quarter,” the ECB remarked, citing “rising interest rates and lower financing needs for fixed investment” as the “main drivers of reduced loan demand.”

Banks expect demand to remain subdued in Q3. “The past rate increases continue to be transmitted forcefully,” the ECB emphasized in the new statement.

PMIs released this week suggested the eurozone economy is teetering precariously on the brink of recession. Germany is mired in what looks like a multi-quarter downturn.

Lagarde on Thursday said the outlook “has deteriorated,” at least in the near-term. She cited tepid domestic demand, but noted that as inflation recedes, real incomes will rise, “supporting the recovery.”

As a reminder, APP reinvestments (i.e., the reinvestment of principal payments from assets purchased under the bank’s “regular” QE program) have now ceased. PEPP reinvestments (i.e., principal payments from assets purchased under the bank’s pandemic QE program) will continue at least until year-end 2024. The PEPP reinvestments are one way for the bank to tamp down spread widening in the periphery should conditions deteriorate.

The ECB and Lagarde have effectively pre-committed to most of this cycle’s rate hikes. They stopped doing that on Thursday. The forward guidance in the statement suggested decisions will be data dependent from here and Lagarde wasn’t as adamant about policy “not being done.”

Further, the statement language said only that policy rates will be “set” at “sufficiently restrictive levels.” That doesn’t guarantee additional increases. Obviously, the bank committed to keeping rates higher for longer, but it’s at least possible (if not likely) that this was the last hike.

Suffice to say September is live, but for the first time this cycle, a hike at the next ECB meeting isn’t a foregone conclusion. That’s a notable shift.