>> almost everything has told us we are in a regime shift. we are going to see growth decelerate and inflation decelerate. >> it is a pause as opposed to a transition. >> people get overwhelmed with information they can't process, so they go, you know what? risk off. >> it is probably not the optimum time to be overweight on risk. >> we are going to decelerate for sure, but i think the consumer will stay resilient. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. tom: good morning, everyone. donovan pharaoh, lisa

abramowicz, and tom keene. -- jonathan ferro, lisa abramowicz, and tom keene. kailey leinz in for we cyber moist today -- for lisa abramowicz today. jon, what is the question you would ask the president of the ecb? jonathan: i think there are some central bankers here that feel the same way right now. i would say, where is the big change? here are your words. this is going to be an important meeting. what was important about it? i would just look at the euro-dollar and let the market speak for me. euro-dollar is totally unchanged. to get that line in there, this may also imply a transitory period where inflation is moderately above target, that might show how different the ecb approaches compared to the federal reserve. the fed is taking on this flexible average inflation targeting mode. the ecb has overshot its target for years, and they are looking to make it up. they are just trying to get back to something sustainably towards

2%. tom: the distance from brainerd to bullard, just as two examples on the fed, as an intellectual exercise. the distance from germany to finland is a different exercise, isn't it? jonathan: i would say the difference from christine lagarde and the executive order in the bundesbank right now is much wider than the distance between brainerd and bullard. tom: explain that. jonathan: there is an agreement on the federal reserve about interest rates and flexible average inflation targeting. that is much more of a dovish reaction function then we have over at the ecb. there is an agreement there. we have this very murky agreement over at the ecb, wary of just approaching 2% so-called symmetrically. i think that is different. the forward guidance has been agreed over that the ecb is radically different to the guidance that has been achieved and the framework shift, the reaction function shift, at the federal reserve. tom: and we have negative yields further negative in europe. we have less negative yields on

germany and in switzerland. they have turned around and fractionally smaller negative yields. all of this a distraction for earnings season coming up. texas instruments yesterday, other names today, i believe intel and twitter. what have you learned about earnings season so far? kailey: i've learned that beats actually do matter this season. in quarters past, even if you beat expectations, that wasn't good enough to meet the high bar that has been set. this season feels a little bit different. it feels that earnings are giving an impetus to risk appetite. that seems to be what is fueling the risk on feel in this equity market, putting any fears of the delta variant or the growth outlook kind of to the back burner. tom: an important conversation on investment allocation any moment. there's only one data point today for me that matters, the 10 year u.s. yield, 1.30%. jonathan: 1.2950 percent right now. it has been all over the place. what a trip, from 1.12% to

1.30%. on what? we have taken on a life of its own in this bond market. tom: i am going to go delta variant is in the mix. maybe congress is in that mix. but to me, it is about a boom u.s. economy. do we see any lessening of boom economy feel? i don't think so. kailey: i think many -- jonathan: i think many people think we have seen the peak of it. that conversation has built up anymore material way. the peak inflation conversation, peak inflation fears are part of the story, too. just want to bring up the italian 10 year. tom: i can't go on without it. jonathan: 0.66%. not a big move, but i imagine the ecb is happy it is not moving and the other direction. tom: it is a lower yield now? jonathan: a lower yield of 0.66%. 66 basis points on the italian 10 year. tom: i am watching the swiss 20,

-1.25%. right now, brent schutte joining us with northwestern mutual. this is an important conversation about actually what to do with your money, given where we are. i guess it is all yacht, you want fixed income as a ballast. how are fixed incomes going to help my portfolio? brent: they are a safety net. you don't want to put risk in the equity markets. if you are taking money out of your accounts, you don't want that equity risk. he need to have it in fixed income, even if it is expensive. we do suggest you have some of that if you need that, but we still do favor equities overall, slightly less then at the beginning of the year, but we do see stronger growth, we see inflation coming back, and the market moving towards those cyclical names that do well when economic growth is strong. jonathan mentioned a peak, but it is more like a plateau.

you are not going to end up with deceleration until sometime next year. there is still plenty of room for the economy to run. jonathan: cumulative gains are going to be really important for this bond market. many people in the bond market are focused on that. it seems to be the rate of change is something so many people are focused on. that seems to be what is driving markets through the summer. to that point, are you saying people will be surprised we will stay at these elevated levels, and that will persist through this year and a way that some people aren't expecting? brent: yes. you have had the defense of trade come back as people worry about some of the things you will just mentioned. i think you have a lot of crosscurrents now. you have the inflation is too much crowd come of the delta variant crowd, the stocks are too extensive crowd. that has all led people to move towards later cycle positioning such as growth in large-cap. i think as that inflation pulls back in the coming quarters, as economic growth continues to be strong, people will invest in those things that do well when the economy is broad and strong,

like cyclicals, value, and small caps, not growth and technology. i think that trade is a bit overdone, and we will get back to focusing on stronger economic growth with inflation coming back. jonathan: the challenge to that is in the back end of this year, back end of q3 into q4, if the supply side of the economy starts to respond anymore material way, that is going to push out these concerns about high inflation. we will be back to that low-inflation, low rates story. that feels a little more growthy to me. it feels like a nasdaq trade as opposed to a russell trade. what would your thoughts on that be? brent: to me, if growth and inflation pulls back, i think the yield curve reese deepens -- curve re-stevens. if we get through ash re-steep -- re-steepens. if we get through that, i think

people are way too negative right now and are looking to get back to the comfort of growth in large-cap. they believe what you saw the last 13 years is going to be the next three or four years, and i don't think that is the case. i don't think we go back to worrying about deflation. i think this economic cycle is different. i think we worry more about the upside to inflation, and that means people need to position their portfolios just a bit differently, and in those things they all hate right now because they didn't do well for the last few years. we've had different economic cycles, everyone is different, and this time i think it is more towards the value and cyclicals side. kailey: how do you factor long-term economic spending and potential infrastructure spending into that equation? have you got to lower your assumptions of what we actually are going to see? brent: i think that is the big unknown. i think we get something done, and i know we opened with him and terry on the ecb and how they are different, i think policymakers are going to push on the demand side more permanently because there are some hawks left, but they are

debating whether it is $500 billion or $700 billion, not whether it is zero. so i think there'll be more of a demand push this cycle because of the things that happened last cycle. that means you need supply to keep up with it. that is the backdrop for a bit higher of a growth rate, a bit higher of an inflation rate, and i worry less about downside. to me, that is still pushing you towards those things that do well when economic growth is strong and broad. brent: are you tuning into this news conference -- jonathan: are you tuning into this news conference? i am just trying to gauge the interest. [laughter] brent: i will be going down to my office in milwaukee, so i will be getting out of my basement and moving towards my office. tom: in celebration, come on. jonathan: that was a bloomberg radio promo. let it linger. brent: maybe i will go to the bucks celebration. it was a pretty good win, wasn't it? jonathan: good for you.

giannis is quite the player, isn't he? a greek man comes to america and shows us all how to play best of all. brent schutte of northwestern mutual, thank you. tom: we have a headline team down under the home depot here at lexington and 57th. we hide them. the headline team brings in these press releases and gets this stuff out. union pacific, they are struggling with the pandemic, the goods shortage in the chips thing and all of that. the average train length, 1.78 miles, up 9%. look what you can learn from the bloomberg, jon. jonathan: thank you, tom. tom: do they have trains that long and the united kingdom? jonathan: i have no idea. i won't pretend i know, either. i will have a look in the commercial break. tom: you are in western indiana. jonathan: when was the last time you got a train?

tom: you know, years. jonathan: how many years? when was the last time? tom: i do take the acela every once in a while when i go down to harass annmarie hordern. you are stuck at a real crossing, and the train is 1.78 miles long. jonathan: tom, i am going to share some thing with our audience. whenever you bring up purdue, he usually means you have done something wrong. jonathan: you've got that right. what have you done wrong? tom: i ordered domino's pizza. jonathan: coming up after the news conference with the ecb, peter pratt, former ecb economist, will be joining us. your equity market on the s&p 500 up by 0.05%. coming off the highs. your bond market, your tenure you looks like this, one -- like this, 1.29% on yields.

this is bloomberg. laura: with the first word news, i'm laura wright. president biden is dismissing concerns that the u.s. would experience persistent inflation. he told a cnn town hall last night there will be near term inflation because the economy is improving. still, he said restaurants and others in the hospitality industry might take longer to recover because of hiring difficulties. while the senate works on the infrastructure bill today, president biden will host a business and labor leaders lunch at the white house. he will make a point to the frequent adversaries to come together to support the bipartisan infrastructure framework. senate negotiators are close to a deal that would allow lawmakers to begin debate on the legislation. the u.s. and germany have made it official they finished a deal approving completion of the controversial nordstrom -- controversial nordstrom to -- controversial nord stream 2 pipeline. this allows germany to take

action if russia tries to use oil as a weapon against ukraine. -- we'll spend more than $47 billion this decade to electrify the luxury carmaker. mercedes plans to launch new electric vehicle platforms in 2025 and will set up eight more battery factories with partners. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm laura wright. this is bloomberg. ♪

>> this is an existential issue. we already see people in various parts of the world losing their

lives to the impact of climate crisis, and we need to respond. the 20 countries that are the major economies of the world really need to step up and come up with reductions that can keep the minimal amount of damage possibilities and focus. jonathan: john kerry there, the u.s. special presidential envoy for climate. good morning. alongside tom keene, i'm jonathan ferro, together this morning with kailey leinz. lisa back with us this coming monday. going into the opening bell, 12 minutes away from jobless claims in america. and before we handed over to president lagarde with that news conference at the ecb, we will take a look at jobless claims. yields unchanged now. your euro slightly negative, -0.1%. we can call it -0.1 per five -- call it -0.15%.

t -11 and 13 seconds. tom: we will go to tents of seconds, maybe a launch delay. with us, ira jersey, bloomberg intelligence. usually i go to the short term paper overnight, six months. not this time. let's go bigger, broader, may be a question president biden would ask. what are the foreigners doing, not saying, what are they doing with hans, notes, and bills -- with bonds, notes, and bills? ira: it seems like foreigners are a big reason we have seen treasury yields go significantly lower over the last couple of months. the way that we can ascertain that is not through data because unfortunately, we don't get a

lot of the flow data for another couple of weeks, but what we do have is we know that most of the move in treasury yields over the last month or so have really come during european hours, so basically from want to talk in the morning new york time to about 7:00 new york time. that signals that a lot of this buying is coming from foreign investors who are looking for a fight -- for a flight to quality. what we had underappreciated is the significant challenges that economies are still having with the pandemic in the emerging world, in asia and in parts of africa and even eastern europe. when used will have significant caseloads and lockdowns continuing their, people are still going to look for the flight to quality in treasuries, still that i of choice when all else doesn't seem to be going very well. jonathan: we just had a conversation with james athey of aberdeen standard, and he said

we face the very real prospect this ecb won't be able to hike through this cycle. i've heard it from somebody people, even optimistic people on the continent, saying the same thing. if we are stuck here for the ecb, what does it mean for the whole cycle? not in moments where you need some safety. i mean the whole cycle, regardless of risk sentiment. tom: based on the statement this morning -- ira: based on the statement this morning, it seems like the ecb may be buying more assets. will they actually be able to stop buying bonds at some point during the cycle? that has to be the first impetus. it seems like the ecb is somewhat more dovish. again, i think that the whole global interest rate cycle is significantly challenged by the uncertainty about how fast growth can be. even though growth in the u.s. might be ok in the not-too-distant future, we are still worried about the global implications of growth, and

let's face it, with supply chains the way they are, with the interconnectedness of the global financial markets, if german yields stay at -50 basis points, it is going to be hard to see u.s. yields rise much above 2%. jonathan: this is the issue when it comes to the reaction function as well. the federal reserve, i would argue, is a much more dovish reaction function than the ecb. the difference is that the federal reserve reaction function is likely to be tested. so what is going to drive treasuries here, the fed, the data in america, or everything else outside? ira: lately, it has been everything else outside the u.s. because the u.s. data has not been terrible. in fact, we were looking for a couple of weeks when we were really looking for the reason and he was fine because everyone in the u.s. was like, we don't like yields here. they are too low. that is when we had to go abroad

and start to look outside the u.s. for who are the buyers. there still are buyers like pension funds that are still seeking yields because they have to buy something, and they would rather buy u.s. assets at even 1% instead of buying german assets at -20 5, 50 basis points. kailey: the u.s. still the highest yield you can get when it comes to sovereign bond markets. you think is going to break us out of this 1.3%, sub 1.5% range? what is the near-term upside catalyst for you? ira: in the u.s., it is not going to be inflation. i think inflation expectations are probably stuck. it is looking at the fed, and are they seriously considering tapering. you have the ecb talking about maybe even buying more bonds from the fourth quarter of this year, but if the federal reserve tapers, i think you will get a meaningful reaction out of the bond market. tom: for those of you on

bloomberg radio, it is a sight to behold. ira jersey is so large among our 19,000 plus employees that in his latest agreement, he demands to be arms to the food court. [laughter] ira: i can't leave my desk, tom. there's so much going on. tom: he's literally an arms length away from the beloved cheese its -- beloved cheese i -- beloved cheez-its. jonathan: i don't think he is here, tom. tom: you and i are in the adirondacks for us to get to the food court. jonathan: what do you want to your from ecb president christine lagarde? ira: i do want to get some clarity as to how they are going to respond to their new operating framework, and will they be buying more assets, and maybe announced that in september? jonathan: i think that is really

important. ira jersey, bloomberg interest rates strategist. if this is more tolerance for higher inflation, don't you have to change your policy? right now, the inflation outlook is as follows, 1.9% to 1.5% to 1.4%. with that in mind, do have to change your policy, or acknowledge that you don't have control over the ability to hit that target? tom: i would say if you are going to hit symmetry, you have to define symmetry. have they define symmetry? i don't think so. jonathan: i don't think so either. isaac this is going to be an interesting one. full coverage of that ecb news conference, and then we will have jobless claims for you just before that. and tom will be saying -- tom: kailey, have you ever had dominoes and cheez-its together?

jonathan: kailey, just don't. is that how excited you are for this presser? you are thinking about the snacks for the presser? tom: can i get more tanning, please -- more tang, please? jonathan: a beautiful one in london. this is bloomberg. ♪

[ "me and you" by barry louis polisar ] ♪ me and you just singing on the train ♪ ♪ me and you listening to the rain ♪ ♪ me and you we are the same ♪ ♪ me and you have all the fame we need ♪

♪ indeed, you and me are we ♪ ♪ me and you singing in the park ♪ ♪ me and you, we're waiting for the dark ♪

jonathan: live from new york city for our audience worldwide on tv and radio. your news conference in frankfurt, germany with christine lagarde just moments away. before we get there claims data in america and a little bit of other data points in between. here is michael mckee. michael: we see 419,000 initial jobless claims filed last week. that is interesting. it is up from 360,000, which is a change from the previous week. we have not gotten a revision yet, but it does go the wrong way. 350,000 was the anticipated number. 3,000,200 36,000 continuing claims. that is little bit lower than last week. not a lot of changes.

basically in increase of 51,000 from the previous week. the interesting thing is it was the survey week for payrolls. we will see that figure into somebody's estimates as we go forward. tom: we are constrained with time because of christine lagarde. i have been screening this elegant chart. with this data point it is not relevant -- it is not elegant. a little bit of movement from the constructive trend. will the politician see that in washington? michael: no. they will argue the way they want to. economists will say the data is lumpy. i would not worry too much about it overall. the total number of claims, 12,573,000 for july 3 is down by a little under one million. significant progress made

towards getting people off the roles. jonathan: the wrong kind of upside surprise on jobless claims. let's head over to frankfurt, germany. christine lagarde said it will be an important meeting. let's take a listen. president lagarde: good afternoon. the vice president and myself welcome you to our press conference. at today's meeting the governing council focused on two main topics. first, the implications of our strategy review for our forward guidance on the key ecb interest rates. second, our assessment of the economy and our pandemic measures. in our recent strategy review, we agreed asymmetric inflation target of 2% over the medium-term. our policy rates have been close to their lower bounds for some time.

the medium-term outlook for inflation is still well below our target. in these conditions, the governing council today revised its forward guidance on interest rates. we did so to underline our commitment to maintain a persistently accommodative monetary policy stance to meet our inflation targets. in support of our symmetric 2% inflation target and in-line with our monetary policy strategy, the governing council expects the key ecb interest rates to remain at their present or lower levels until we see inflation reaching 2% well ahead of the end of our projection horizon and durably for the rest

of the projection horizon. and, we judge that realized progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilizing at 2% over the medium term. this may also imply a transitory period in which inflation is moderately above target. let me turn to the assessment of the economic outlook and our pandemic measures. the recovery in the euro area economy is on track. more and more people are getting vaccinated and lockdown restrictions have been eased in most euro area countries. but the pandemic continues to cast a shadow, especially as the delta variant constitutes a

growing source of uncertainty. inflation has picked up, although this increase is expected to be mostly temporary. the outlook for inflation over the medium-term remains subdued. we need to preserve favorable financing conditions for all sectors of the economy over the pandemic period. this is essential for the current rebound to turn into a lasting expansion and to offset the negative impact of the pandemic on inflation. therefore, having confirmed our june assessment of financial conditions and the inflation outlook, we continue to expect purchases under the pandemic emergency program, our pepp, over the current quarter, to be

conducted at a significantly higher pace than during the first months of the year. we also confirmed our other measures to support our price stability mandate, namely the level of the key ecb interest rates, our purchases under the asset purchase program, our reinvestment policies, and our longer-term refinancing operations, as all of that is detailed in the press release published at 1:45 today. we stand ready to adjust all of our instruments as appropriate to ensure inflation stabilizes at our 2% target over the medium-term. i will now outline in more detail how we see the economy and inflation developing, and then talk about our assessment of financial and monetary conditions. looking at the economic activity

, the economy rebounded in the second quarter of the year, and as restrictions are eased, is on track for strong growth in the third quarter. we expect manufacturing to perform strongly, even though supply bottlenecks are holding back production in the near term. the reopening of large parts of the economy is supporting a vigorous bounce back in the services sector. but the delta variant of the coronavirus could dampen this recovery in services, in tourism , and in hospitality. as people return to shops and restaurants and resume traveling, consumer spending is rising. better job prospects, increasing confidence, and continued government support our

reinforcing spending -- are reinforcing spending. the recovery in domestic and global demand is boosting optimism among businesses. this supports investment. for the first time since the start of the pandemic, our bank lending survey indicates that the funding of fixed investment is an important factor driving the demand for loans to firms. we expect economic activity to return to its precrisis level in the first quarter of next year. there is still a long way to go before the damage of the economy caused by the pandemic is offset. the number of people in job retention schemes has been declining, but remains high. overall, there are still 3.3 million fewer people employed than before the pandemic,

especially among the younger and lower skilled. ambitious, targeted, and coordinated fiscal policy should continue to complement monetary policy in supporting the recovery. in this context, the next generation eu program has a cure-all to play -- has a key role to play. it will contribute to a stronger and uniform recovery across euro area countries. it will also accelerate the green and digital transitions and support necessary structural reforms that lift long-term growth. let's look at inflation. inflation was 1.9% in june. we expect inflation to increase further over the coming months and to decline again next year.

the current increase in inflation is largely being driven by higher energy prices and by base affects from the sharp fall in oil prices at the start of the pandemic and the impact of the temporary reduction in germany last year. by early 2022, the impact of these factors should fade out as they fall out of the year on year inflation calculation. in the near term, the significant slack in the economy is holding back underlying inflationary pressures. stronger demand and temporary cost pressures in the supply chain will put upward pressure on prices. weak wage growth and a past appreciation of the euro mean price pressures will remain

subdued for some time. there is still some way to go before the fallout from the pandemic on inflation is eliminated. as the economy recovers, supported by our monetary policy measures, we expect inflation to rise over the medium-term, although remaining below our target. while measures of longer-term inflation expectations have increased, they remain some distance from our 2% target. let us look at our risk assessment. we see the risks to the economic outlook as broadly balanced. economic activity could outperform our expectations if consumers spend more than currently expected and draw more rapidly on their savings. those they have built up during the pandemic. a faster improvement in the pandemic situation could also

lead to a stronger expansion than currently envisaged. growth could underperform our expectations if the pandemic intensifies or if supply shortages turn out to be more persistent and hold back production. what about the financial and monetary conditions? the recovery of growth and inflation still depends on favorable financing conditions. market interest rates have declined since our last meeting. financing conditions for most firms and households remain at favorable levels. bank lending rates for firms and households remain historically low. firms are still well-funded as a result of a borrowing in the first wave of the pandemic, which in part explains why

lending to firms has slowed. by contrast, lending to households is holding up. our most recent bank lending survey shows credit conditions for both firms and households have stabilized. liquidity remains abundant. at the same time, the cost for firms for issuing equity is still high. many firms and households have taken on more debt to whether the pandemic. any worsening of the economy could therefore threaten their financial health, which could trickle through to the quality of bank balance sheets. it remains essential to prevent balance sheet strain and tightening finance conditions from reinforcing each other. summing up, the euro area economy is revamping strongly --

is rebounding strongly. the outlook continues to depend on the course of the pandemic and progress with vaccinations. the current rise in inflation is expected to be largely temporary. underlying price pressures will increase gradually come although leaving inflation over the medium-term still well below our target. our policy measures, including our revised forward guidance, will help the economy shift to a solid recovery and ultimately bring our inflation to our 2% target. thank you very much. we are now ready to take your questions. over to you. >> thank you. today the first question goes to reuters. >> good afternoon and thanks for taking my question. could you run me through your

discussion on changing the forward guidance? we hear you cannot get unanimity on the guidance two weeks ago. did that happen today, was there dissent? how is this guidance different than what you discussed two weeks ago? the second question is about the delta variant which you mentioned a couple of times. we know it is more contagious and u.k. infection numbers are rising rapidly. do you see a risk the emergency phase of the pandemic will last longer than many think because of delta? is delta properly factored into your risk assessment? thank you. pres. lagarde: i will need at least an hour to go through all of your questions because you cover huge ground. let me tackle your first question which has to do how we reached our decision in relation to forward guidance. let me take you back to our strategy review and the monetary

policy strategy we adopted unanimously. you have to think in terms of the strategy we adopted as the framework within which we weave monetary policy. there was unanimity on the framework. this is the basis against which we develop monetary policy as we go. there was unanimous agreement around the table that we had to revise our forward guidance. and that forward guidance had to implement our strategy review. we did not have unanimity, but we had an overwhelming majority, about the calibration of the forward guidance on ecb interest rates. that is what i had anticipated. what matters most is the fact that directionally we were all on the same page and determined

to revise the forward guidance, but also to make sure it is geared to implement our strategy. that is very bluntly how it happens and what matters is this chain of events amongst us. you asked me to dissect the forward guidance that we adopted. if you don't mind i will take you through an exercise of going through that long sentence, which is probably the one that is little bit more lengthy in the whole presentation that i gave you. it is a bit more lengthy because the forward guidance rests on three key criteria, it has three legs. i will take you through that. first of all, in support of our symmetric 2% inflation target and in line with our monetary policy strategy -- we are well

and good on our strategy. we remind ourselves we are targeting 2% inflation and our commitment is symmetric. the governing council -- it is not relying on any kind of projections. it is the governing council in its judgment that expects the key ecb interest rates to remain at their present or lower levels until -- that is when it begins to be important -- we see inflation reaching 2% well ahead of the end of our projection horizon. that is leg number one, and two, durably for the rest of the projection horizon and the third leg, we judge that realized progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilizing at 2% over the medium-term. we add to that a sentence you

might remember from the strategy review. this may also imply a transitory period in which inflation is moderately above targets. by these three legs we are essentially saying that we want to see inflation reach 3% well ahead of the end of our projection horizon. you might say what is well ahead? well ahead is determined by judgment of the governing council. it is essentially the midpoint in our overall horizon. a reminder for those of you who do not necessarily know what our projection horizon is come at the moment we project 21, 22, 23. we want to see at least 2% well ahead of the end of this horizon. the second aspect is we want the 2% to be durable. that is the second part of the

statement. it says durably for the rest of the projection horizon. it cannot go below 2%, essentially. the third one, which is important as well, is that we want to look at the current circumstances, and in particular the current underlying inflation to see whether directionally this underlying inflation component actually lead us into that upward trend that will help us reach the 2% target that we are committed to. you have three legs. one that is in the present. you could argue there is an element about job based in that one where we look at the underlying inflation factors and look at the direction we are aiming towards our target, then we want to see it on the horizon, but we want that to a been sufficiently lasting so essentially at midpoint it is already there.

the third question you asked me had to do with the delta variant. on that particular point, our projection from june included some assumption that certain containment and lockdown measures would be continued into the third quarter, and some of it still remaining during the fourth quarter of 2021. it is factored into our projection, and all of the elements we are observing at the moment, whether it is pmi or fun data, are really confirming our projections for the second quarter, which is coming strongly, and for the third quarter. we are in the hands of those who are going to take all of the necessary precautions to make sure that contagion is not producing the negative economic effects we have seen in the

past. vaccination is clearly one of the components we look at carefully. the second consideration we debated around the table because it varies from one country to the other is the fact that over the course of those waves, the first, second, and third waves, our citizens, our governments, our health services are getting more used to the responses that must be given in order to address the health of people but also not to damage the economy. thank you. >> the next question goes to cnbc. >> thank you very much president lagarde. i have a question on how the market is interpreting what you have said today. will rates and monetary policy stay lower for longer? would you agree?

i've have a question on whether you have a potential change in pepp once it is expiring by the end of march, whether it has to transition into some sort of other program. thank you. pres. lagarde: thank you so much. i have tried to describe as well as i could the forward guidance on ecb interest rates and the fact it is taking into consideration three key criteria over the space of time in order to make sure we have solid and lasting elements that will actually be useful to guide our actions. i would not say it is lower for longer. i would say it is an indication that none of us would want to tighten prematurely.

i think we are performed by past experience and most recent history. this element of patients you have between -- this element of patience you have between the midpoint and the horizon and that it has to not only be early and way ahead, but also lasting, is precisely intended to avoid premature tightening that would be detrimental for the economy. i think the combination of patience in order to gain confidence is what we discussed and what we tried to embed in the sentence. on the rest, essentially, i would summarize it by steady hand. the use of instruments such as pepp has been steady hands.

we conducted the joint assessment, which is to assess the finance conditions and determine if they are favorable all the way through from market interest rates to household loans, and then we take a good look at inflation and its various components. based on that joint assessment, which is broadly in line with what we saw in june, we decided a steady hand to keep a significantly higher pace of purchases compared with what we did in the earlier month. pepp, that was not discussed as a program. anything like that would be premature. it was not an issue for debate. >> thank you. now to carolyn from bloomberg for the next question.

>> could afternoon and thanks for taking my question. you are new 2% target was front and center when it came to your plan for interest rates today. you said inflation should reach 2% well ahead of the end of the projection horizon but your last projections in june saw inflation moving away from 2%. what are you going to do about that and doesn't this imply a more forceful response is needed? secondly, again on this well ahead of the end of the projection horizon, you just mentioned about the midpoint of your projections. are we right to be looking more the second year of your inflation forecast rather than the first, and is there an understanding about what this actually means? thank you. pres. lagarde: it means what is written in that statement. i know it is going to take time to unpack it and understand all

of the subtlety and the detail of it. it is pretty straightforward. we want the 2% at the end of our projection horizon, which by the way varies over time. we do forecast 21, 22, 23, but it slips into another year when we get closer to the end of the first year. in december we will at an extra year. it is misleading to say your first or your second year, which is wire prefer to adopt a midpoint reference in terms of indication, which is not to say it is cast in stone. the governing council will use its judgment to apply that criteria, which i have mentioned. on inflation, let me remind you what we are doing at the moment. that is the second part of the discussion we had today. we have not changed in that

respect. we are still looking at making sure we can preserve favorable financing conditions to all sectors of the economy and that we would counter any tightening that would be -- that would counter what we want to realize in terms of inflation. what joy mean by that? -- what do i mean by that? we want to alleviate the downside impact of the pandemic on our inflation target. that is what we are aiming for with our pepp. pepp was for the emergency period of the pandemic. we are still aiming for the crisis. we believe any particular exit would be absolutely premature in that respect. our role is to come back to that

pre-pandemic moment in the inflation target as we had it at the time on the forecast. >> thank you. the next question, jean philippe, please? pres. lagarde: hello and good afternoon. i have two questions. on this guidance, is it a bit misleading for me -- the previous guidance until june was to refer to the inflation outlook, now we can see it is written the governing council sees inflation converge, which can be misleading because the understanding was -- that is fake. a beer can correct me once again. -- maybe you can correct me once again. the second question, where this

information the pepp will be conducted until the coronavirus crisis is over. what is the level of knowledge of pandemics about central bankers that would allow them to say one day the pandemic is over and what criteria would you be able to use to assert that yes, it is over. thank you. pres. lagarde: merci, thank you very much. i'm going back to the sentence that encompasses our forward guidance. we say, in particular, that interest rates will remain at their level or lower levels until such time as the governing council sees inflation reaching 2% well ahead of the end of our projection horizon. it is obvious that the 2% we