The European Central Bank (ECB) has raised its policy rate by 25bps to 3.5% – the highest in 22 years.

At ECB President Lagarde’s press conference following the announcement, she said that inflation is still too high. The ECB now expects inflation to stay above its 2% target into 2025.

Lagarde also pointed to upside inflation risks including a wage price spiral. If upside inflation risks materialize, rates may still need to increase considerably.

Issuers and investors should be careful of this potentially lopsided future rate path distribution in their decisions.