>> story is going to flip terms of -- the story is going to flip in terms of profitability and inflation. >> we are in a very low risk environment, and the feeling is -- >> when you look at finances in general, there is still chance consumer spending overtime. >> i think the cycle lasts just a little bit longer. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathan: the ecb decides this hour. from york city, for our audience worldwide, good morning. this is "bloomberg surveillance ," live on tv and radio. alongside tom keene and lisa abramowicz, i'm jonathan ferro. we are -0.3% on the s&p. four days of losses on the cards. tom: i love that we had ben laidler optimistic. douglas cast watching.

he's very cautious on the market. he looks for a market hurricane. jonathan: i don't know if the sarcasm translates or not over bloomberg radio. they have been really marginal moves into thursday. in about 45 minutes, the ecb joins in. tom: everybody is going to hang on every word of the press conference. you are expert on it. but the press conference may have some real value. she's got to change the dialogue in what way? jonathan: we should get some understanding about the pace of purchases. 30 minutes past the next hour, it is the news conference. at the start of the news conference, you will get some forecasts just in terms of what they do with their outlook for inflation. tom: we just heard from johns hopkins university. the pandemic is no different over there. she's got to be pandemic

affected. jonathan: that is the story for the pandemic emerges the purchase program. the key is emergency. are we still in the emergency phase of all of this? do we still need a program that bag with that much flexibility? that's the conversation they will have in the governing council and a news conference with journalists. tom: but in manchester city, they will have 30,000 people in the stands, one thing? jonathan: you had to go there, didn't you? tom: i'm just lost on the whole thing. jonathan: many people don't get it. are we still in the emergency phase of this whole pandemic? tom: i was in a restaurant last night over by you, and there's no emergency. lisa: perhaps not in a restaurant in new york city. the question is what is the nature of the emergency. i think they have exceeded the u.s. when it comes to vaccinations at this point. it also has to do with supply chain kinks causing inflation to pick up and the mismatches you are seeing in the labor market

as well. how do they bring it back, and what does the ecb actually do about that? how much does this pepp program really help that? jonathan: did you see ppi in china? factory prices absolutely surging. lisa: the highest in 13 years. this really stems from the fact that alumina's -- that aluminum is the highest it has been. this does lead to come i hate to use the s word, but a stagflationary kind of feeling, even if you get growth of 4%, 5%. it is not necessarily the acceleration that will sustain that. jonathan: aluminum, i'm still practicing. lisa: but it doesn't have -ium at the end. jonathan: 1.3258% on tens this morning. your ecb decision 42 minutes away. euro-dollar, $1.1829, positive a

little more than 0.1%. lisa: and 42 minutes, we could the ecb rate decision, which i am watching. even more interesting is the ad: 30 am christine lagarde press conference. very interested to hear how they talk about their balance sheet as a tool going forward. more than a trillion euros currently in all assets -- more than 8 trillion euros currently in all assets under the ecb balance sheet. does the ecb have the same capacity to do this given some of the split politics of a continent that is not one united nation? at 8:30 am, we get u.s. official jobless claims. the expedition is for 30,000 new jobless claims. how does this point to dynamism the economy when job openings have surged to nearly 11 million, record all-time high? why does this persist? why are there any layoffs at this point? is this equipped rate coming up

as people see more flex ability and options -- more flexibility and options? tonight, president biden will give a speech about covid, laying out a five point plan, trying to discuss how to set the next stage where we can reengage with society and the way we used to know it. jonathan: thank you. let's start with a story that developed in the last 24 hours. should you keep dancing of the music slow down -- dancing if the music slows down? this price target moved to 4250 was from 3800 previously. euphoric sentiment poses additional risk of more scarce inflation protected yield. i am pleased to say that leading that team is savita subramanian of bank of america, the head of u.s. equity and quantitative

strategy, and she joins us. some people might call that capitulation. i'm not sure i'm in that camp. walk me through your approach to this market, to your forecast, with other people throwing out numbers like 5000 for next year. savita: the process is a disciplined process. we have our five signals we look at, which range from things like sentiment to fair value, valuation, earnings revisions. here's what's happened over the last few months. earnings have come in much better than expected. the market has basically doubled off of the covid levels. essentially, a lot of what we have done in terms of thinking about our target from here is how much good news is priced into the market, how much more in the market rise from these levels, or is there a downside risk in the months to come. part of what we are looking at is the idea that the market is essentially, the valuations of the market are leading -- are

leaving very little margin for error. and while, earnings have come in strong, but we are starting to see those harbingers of risk. everyone is talking about supply chain risk and inflation. we are actually starting to see that come in the numbers. every month, we track this guidance ratio. we look at the number of companies above or below consensus. over the last four weeks, we have seen the guidance ratio move from record high to a big move, starting to see companies worn on profit showing up across the s&p 500. earnings are at risk from a cyclical pressure of supply chain dislocation, etc. second of all, when you look at secular pressures on margins, we have this great period of time for the s&p 500 of

globalization. the past 20 or 30 years has been about u.s. companies getting more global, a kind of arbitrage of taxes, labor, etc. now we are at peak localization. we are starting to see companies on shore, and that is going to potentially stall or reverse this long-term theme we have for big multinationals in the s&p. tom: partition for me the earnings dynamic, the dollar amount of earnings of the s&p index versus the partial differentials of price to earnings. which of those dynamics are you focusing on with such a narrow call? savita: i think it is more the pe that is making us think there's not a lot of upside from here. i will tell you one thing, we have a framework that is not very predictive over the near-term, but it matters over the long term. the ark of the framework is 8%.

tom: i don't mean to interrupt, but this is math that is important. is year r -- is your r squared valid given those companies? savita: it works during the tech bubble. this is an important point because the last time this framework was as negative as it is today was in 1999, another period where we were all calling out the primacy of technology. i think that today, the bubble is even more dangerous because it is not about growth stocks, which is where tech ultimately has its multiples. this is what scares me, that the s&p 500 has essentially turned into a 36 year zero coupon bond.

if you look at the duration of the market today, it is basically longer duration than it has ever been. but that means is that any move higher in positive capital to get interest rates, credit spreads, risk premia, that is going to be a huge knock on the market relative to this institute he we have seen in the past. lisa: you did upgrade your forecast, however. why does this not become the bear case you originally saw? savita: i think the market is looking at it in the near-term, but i think our view is earnings have come in a little bit better. companies have been able to navigate a lot of the market sectors. we are at peak margins today for

s&p, so it is a pretty remarkable course that corporate america has been able to manage the covid related risk as well as it has. but i think that now we are starting to see some of those areas, and we are waiting to see how corporate america deals with it. if we go back to 3800, companies are unable to pass any of it onto prices and we have a more hawkish fed. i think the other thing pointed out in our note is that earnings matter for the market, but post crisis, what matters even more is the fed, and i think it is kind of a markable, we have a chart in our notes that shows the fed has basically displayed have to market news outside earnings since the global financial crisis. so you've got a market that is basically fed by stimulus. we are now at a point where the fed is talking about tapering to get it is hard to imagine they

are going to accelerate asset purchases. what gives? valuations don't reflect any of this. jonathan: i've only got 60 seconds left on the clock, but i don't want to leave you before asking, what do you want to own right now within this equity market, away from the next level stuff? savita: there's always a bull market somewhere. what you want to own his the keys and today, which is inflation protected yield. let's say the fed keeps rates low forever, but inflation is starting to bubble up. don't buy bonds. bonds offer you a fixed coupon that is not going to keep up with inflation. energy dividend yield is, companies that are tethered to inflation and can pay a growing yield, i think that is the call right now, something on income and inflation protection. jonathan: this is great. next time you come back,

let's get you with jonathan golub of credit suisse again. [laughter] let's do a repeat of that. good to catch up. we appreciate your time, as awaits -- as always. send our regards to the team. the last time, i just sit back and let them go. lisa: it's great to get both sides of the case because this is the debate being had right now. jonathan: and away from the index level discussion, which is stunning to hear from bank of america right now, there is a call within that to get long some aspects of this market. tom: it is an absolutely original call, which speaks to how original the times are. jonathan: very original. from new york city this morning, good morning. 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. equity futures down 11.

>> i think it's unlikely that the fed is going to hike any time soon. i would even argue that 2023 is

too soon. but if they were to hike, are we ready for what is going to happen? what happens to asset prices and the feedback loop? so we are a bit stuck in a debt trap, and that has been informing our forecasts for a long time. jonathan: always punchy, steve major of hsbc. good morning. alongside tom keene and lisa abramowicz, i'm jonathan ferro. here's the price action in the equity market about 20 minutes out from that ecb decision. let's call it 30. your equity market down 11, -0.25% on the s&p. that's been a story the last couple of days, three days of losses, but really marginal moves. yields lower by about a basis point. let's call it 1.33%. tom: steve major is saying 1%. you have been framing out one point 12%. what is the ramification for the market if we get to 1.20%? is it good or bad for stocks? jonathan: why do we get down to

those kind of levels? it is what drives those levels that ultimately matters. can you frame steve major's framework for this right now? we've added so much more debt to the system, both the corporate side and the sovereign side. so your tolerance for higher interest rates diminishes almost every cycle. we have played this game before. we saw it in the last cycle as well. the peak for interest rates is that little bit lower this time around as well for the fed funds rate. in his opinion, he's making the argument that maybe you don't get that first move over at the federal reserve for a long time. maybe several years. tom: josh wingrove now is at 1600 been to wayne, or bloomberg white house reporter. thrilled he can step in this morning. when we get to 5:00 p.m. today, the white house and the unvaccinated. what can the white house, what can the president do unilaterally to affect, motivate

the unvaccinated? josh: he's running out of tools and the toolkit, that's for sure. we will see that big speech tonight, six planks of his so-called new strategy for the pent big. they thought they had quelled it. what they hinted at, and this is absolutely not confirmed, is that maybe they will expand vaccine mandates. that would probably be for federal workers, where biden has the power to do that. they have confirmed that they don't actually have the power to impose widespread national vaccine mandates of any kind. what they've said is they are hitting singles instead of home runs. these little incentives, whether it is an employer or sports venue requiring it, that is where they are going to hope to be. tom: that is what the mets do. they hit singles, not home runs. lisa: they don't hit any home runs.

what kind of political support is he going to draw from republicans, since a lot of the regions lagging behind with vaccinations tend to be red states, not blue states? josh: some republican governors have been pretty out there in terms of calling for public health measures. others have been obviously pushing against the tide. he's been clashing with them on and off. that really does limit what the federal government can do. i think there are other powers though are you will have more questions than answers once we get past that 5:00 our and passed that speech. when will they authorize use of the vaccine for children under age 12? it still looks to be weeks or months away from that. lisa:lisa: what is the delay with the timeframe there? josh: the fda is still working on it. this is a group that would probably get a lower dose, as opposed to just the same does everyone else 12 and up is getting. that has been part of the delay on that. even if you are fully vaccinated

, you have kids in your home under 12, you have to take precautions still. others you don't have kids or have older children are returning to a more normal life. of course, we are worried about the delta variant, although there are real mixed views on how many of those we are seeing, and preparing to start those booster shots september 20. it looks like they will start with pfizer only. moderna is still going through the process. so that booster question in itself is raising questions because you are putting shots in arms of all americans, potentially even healthy younger ones, that potentially don't need it as much. lisa: the culture wars in the united states heating up. i do think this dovetails into the covid story. you have seen a split nation. president biden is planning to sue texas over this abortion all that has been very controversial -- abortion law that has been very controversial, that the supreme court did not weigh in on. i believe it bans abortion after

six weeks of pregnancy. what is the likelihood that it gains any traction? how much does this hard and partisan lines in the nation? josh: it is definitely hardening partisan lines. there has been substantial pressure on the biden administration to do something, even if it is a hail mary type eagle action. we don't know yet what the fate of that will be come but the supreme court ruling puts texas on pretty strong footing. women don't know they are pregnant until four weeks or more after that, so that is a very small window. there are no exclusions. he waits -- d texas governor was asked about exceptions of rape, and he said they would just catch all the rapists. this puts pressure on the democratic base, clamoring for them to just respond, to do anything they can to expand access to abortions in texas,

but their options look pretty thin at the moment. jonathan: it really serious issue, a sense of the tone of the debate in washington, d.c. and beyond. good to see you. josh wingrove, bloomberg white house correspondent. some headlines coming from jen psaki, the press secretary, the white house press secretary, saying biden to talk about vaccine boosters today. the president also to list steps to make covid testing more available, so when the president does speak to the prosecutor he saying the president will talk about vaccine boosters and steps to make covid testing more easily available. tom: they are managing the message. i get it. what are they going to do to motivate the unvaccinated? percent vaccinated in florida, 50 something. it is even worse in texas, fortysomething. come on, there's two discrete americas. what does he do to motivate the southeast to get vaccinated?

jonathan: essentially what you are asking is whether we can actually do anything at the federal level, or if it needs to be done at the state level, with the governors florida, of texas. lisa: that frankly is how companies have responded. i think the answer really lies with corporation. i believe there was a survey on bloomberg today showing that about half of all major corporations have mandates for vaccinations. how much are airplanes going to be the new determinants of vaccination, basically saying you cannot board if you are not vaccinated? i think that is where it is going, that you have certain capabilities or certain privileges, and frankly there has been no ban on that, and you potentially get more consumers coming in if they feel safer. so at what went does that dynamic push people into getting vaccinated? jonathan: 5:00 p.m. eastern time , you will hear from the president of the united states. from new york city this morning,

good morning. alongside tom keene and lisa abramowicz, i'm jonathan ferro. equity futures down 11. we are -0.2 5%. the dow down 77. bull market over. tom: done. jonathan: on radio, on tv, this is bloomberg. ♪

♪ jonathan: live from new york city, for our audience worldwide , on tv come on radio, this is "bloomberg surveillance." equity futures down 11, negative about 0.25% on the s&p. on the nasdaq, a similar move. the russell down about 0.5%. on the small caps, down about 11. that's the story of the equity market. savita subramanian making some headlines. an upgrade to her price target of 40 to 50. did she sound bearish, or what? tom: the major observation there, to be quick about it, it is less about equity market dynamics and the bank of america call wedded to fed and bond market dynamics. jonathan: pretty constructive on the economy, does not on this market right now.

your next stop for this market in about 15 minutes, and ecb decision. what does that mean for the european bond market? how does it bleed into treasuries? yields in about a basis point get curve just a little bit flatter. steve major of hsbc making the call that we might not see a rate hike at the federal reserve through 2023. what about at the ecb? it to euro-dollar. kit juckes over at socgen, maybe we don't see it for this cycle, for a whole generation. euro-dollar right now, $1.1830, positive a little more than 0.1%. we will hear from the ecb and get more about the pace of purchases. then there's going to be this compare and contrast between the ecb and the federal reserve. a taper at the ecb is not the same as a taper at the federal reserve. the ecb had this pandemic emergency purchase program alongside the asset purchase

program. as a defined package, and envelope of 1.5 trillion euros, and loose calendar based guidance as well. it is worth bearing in mind that if you use the word taper, taper at the ecb is something very different to taper at the federal reserve. tom: we will have to see what she says at the press conference. jonathan: i can see you are so excited about it. [laughter] 8:30 eastern on bloomberg radio. have you had rest over the long weekend, tk? tom: finished the summer reading. jonathan: all right, cool. [laughter] oh, what it is like over at the tom keene household. let's get you some movers this morning. this is romaine bostick. romaine: a lot moving this morning, particularly in the airline space. all of the major airlines out with periodic updates. it is pretty much a story about deceleration in bookings and elevation in cancellations. not looking good here.

american airlines, united airlines. american saying they expect total revenue to be down more than 30% in q3 compared to 2019, the two years -- that most of these airlines are comparing themselves to. american airlines looking for about a 24% to 28% decline quarter over quarter. southwest airlines looking at about 18% to 20%. all of the airlines looking for a drop in revenue based on that 2019 comparable quarter. then you look ahead into q4, jetblue saying not only is q3 going to be bad, but q4 looks like there's going to be trouble ahead, so it does expect some of the leisure travel around the holiday season to hold up slightly. all of the major airlines here, united, southwest, jetblue, frontier all lower in the premarket. keep an eye on ford, that company abandoning operations in india. it is going to take a 2 billion-dollar charge.

the company really got squeezed there. and affinity for lower priced, ford just couldn't make those numbers work. take a look at the retail sector. biggest percent mover here to the upside is lululemon. shares of about 13% now. a beat and raise quarter. they continue to be the juggernaut in this space. strong pricing power, and they seem to be unaffected by those supply chain issues. macy's getting an interesting upgrade. the folks at cowen going, upgrading to the equivalent ofbuy -- of buy. then gamestop, those earnings have come and gone. i don't know. tom: team mean coverage. thank you so much -- team meme coverage. thank you so much. all the airlines reporting. delta saying august didn't happen, but little but of a come back here.

jonathan: united airlines in the last hour said he deceleration in customer bookings in the last few weeks, so seeing a little bit of stabilization apparently in the last 10 days. tom: when you are deputy director of monetary affairs at the fed, you are known to write short, sharp notes. seth carpenter has been acclaimed at doing that across wall street for years, and he joins us for his first bloomberg conversation as chief global economist at morgan stanley. congratulations on your new position. you've got to go fly fishing with alan zentner. that is the indoctrination at morgan stanley. i love the short, sharp note. everybody calm down about inflation. why should we calm down about inflation? seth: i think if you look at the details about what is really driving the inflation, there's lots of reasons to believe inflation in physical goods is really being driven by supply chain disruptions.

we've heard about that for a long time. when we talk to our equity analysts, it seems like most supply chains are starting to get a little bit better at that and at least not get any worse. that means the price level increases for physical goods should be coming to their end pretty soon. we think we have peaked in the u.s. when it comes to inflation now. may be little bit later for europe. but the price level for those goods affected has probably peaked. they are going to start to ease off a little bit. that is going to pull down inflation for the index overall. tom: it is maybe not a global question, but i have to go to america. jon ferro mentioning this earlier. real estate, homes, rent folds into this call, certainly for g10, maybe even g20. how does housing fold into a subsiding inflation? seth: it is the force pushing in the opposite direction, especially here in the u.s. the morgan stanley team, you

mentioned ellen zentner, for a long time has point to do a really bullish attitude we have had on commercial real estate multifamily home sector. strong rent increases will help buoy those inflation measures, so you've got to forces pushing against each other. rents are going to be creeping up, but we are essentially going to be where we were free covid on the underlying rent rate. after some ups and downs, now we are settling into fairly firm, fairly robust housing market. that is going to lift inflation. reversion when it comes to the consumer goods themselves, that is going to be the thing that keeps inflation from rising further from here overall. jonathan: you said inflation had peaked. can you help me understand where we stabilize? do we stabilize at a higher level than pre-pandemic? seth: i don't think so. the one point we have been trying to stress to clients, i find that the narrative of

inflation is high, it is probably transitory, but there's always the upside risk, and to be sure, we are in very different times and anyone who has 100% conviction on the outlook is i lying -- is either lying to themselves or lying to you. if you think about supply chain disruptions, if they get fixed sooner than we think, if some businesses are starting to add capacity on hopes of this covid rebound, you could see those prices fall more than anticipated. so you've got to weigh risks to the outlook for inflation. for the u.s., middle of next year on a 12 month basis, you could be looking at 2%. it could be a bit lower. that possibility was highlighted in the last fomc meeting, where the staff forecast has their key measure doing below 2% in the middle of next year. jonathan: it remind me of that famous quote, if you interrogate

the data for long enough, it will confess to anything. that feels like the moment we are in, isn't it? i can get this labor market data to tell me things are very tight. when you look, what does it tell you? seth: one, i look at where things have issues, and the shortfall we had in last week's data, which was pretty surprising for us on the downside, a lot of shortfall in hospitality and leisure. not surprising. the delta variant surging means a lot of those industries, you are seeing a pullback. we think it is temporary. we think delta will come down and the recovery will continue. but for me, that is one of the key points in terms of thinking about demand. on the supply side, i look at labor force participation, especially prime age aber force participation. it has been creeping up for the last few months. it is well above pre-covid levels.

i think there's reason to suspect it will continue to rise if we get continued strong growth. lisa: if we tie this all together, when you say inflation has peaked in the u.s., do you include wage inflation in that? or is it entirely is supply chain story? seth: very important distinction. i was talking about consumer prices, and that is the part that is going to med of the most for monetary policy explicitly. wage inflation is a different phenomenon. i think one key point to gets lost, and you could look at some of the research coming out of the fed from some of their top economists, not a lot of evidence in the u.s. of this wage inflation push phenomenon. the relation between the two have been fairly weak over the last couple of decades. i think we want to be very cautious and look at some of the

measures that do a better job of adjusting for composition because, again, for the last employment report, we saw this big pickup and wage inflation. it was biggest in hospitality and leisure which is where the underperformance was. if you are not hiring back the people at the middle and lower end of the income distribution, that calculated average hourly earnings is going to get biased upward. i think we want to get super cautious about any medium or long-term wage inflation. jonathan: it was ronald coast, just in case anyone was wondering as well. seth comforter, morgan's -- seth carpenter, morgan stanley global chief economist. full coverage here on bloomberg tv and on bloomberg radio. equity futures -12, down 0.3%. this is bloomberg. ♪ ritika: with the first word news, i'm ritika gupta.

corporate faxing policies -- corporate faxing policies -- corporate faxing policies -- corporate vaccine policies are incorporating mandates. ford calling it quits in india after failing to make significant inroads. ford will shut down its indian factories and take a restructuring charge. about 4000 and please will be affected. american airlines has seen a big drop off in passenger bookings due to the spike in covid cases. the airline estimates third-quarter revenue to be down 32% versus 2019. ed expects booking to recover once covid cases speak -- cases peak. hackers made off with a trove of data that could be used to target you and agencies. no word target un agent to --

target un agencies. no word who was targeted. u.s. antitrust officials have made public the data they are using to help prove mice book has a -- proof facebook has a monopoly over social media. the company said that the case is without merit. 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 ritika gupta. this is bloomberg. ♪ ♪ >> i think the ecb may tap the brakes a little bit today. but i think they are going to be

a lot of central banks to increase interest rates over the next couple of years, so they could outpace that in the u.s.. jonathan: that is the call from ben laidler. from new york city this morning, heard on radio, seen on tv, this is "bloomberg surveillance." alongside tom keene and lisa abramowicz, i'm jonathan ferro. that ecb decision is moment away. here's the state of play in the market. s&p futures down 14, negative about 0.3%. in the bond market, yields lower about basis point for the fx market. euro-dollar positive, $1.1830. tom: the currency market is the litmus paper for the global system, really going nowhere over the last number of weeks. maybe some fractional dollar, but a $1.17 -- dollar weakness,

but a one dollar 70's handle, you wonder if you're going to see that. jonathan: yields in a couple basis points on the italian 10 year to about 73 basis points. let me guide you through the next 45 minutes because this can get really messy, and we will work through it together. in about 10 or 15 seconds, you get an ecb rate decision. going to look for guidance about the pace of purchases within the pepp program. about 45 minutes from now, we get a news conference where we get our casts as well. the rate decision, it is unchanged. then we need to start to look for the guidance from the ecb. let's work through this right now. zero on the main refinancing rate at the ecb. the depot right coming to get 50 basis points. the marginal lending facility at about 25 basis points. then we get a whole bunch of headlines about the asset purchase program. they slow the pace of pepp. that right there is the headline we have been looking for. the pandemic emergency purchase

program, they slow the pace of. the overall envelope is still 1.8 5 trillion euros, set to go through march, but they are going to slow the pace of that program after ramping up earlier this year. as i say, taper at the ecb is very different to taper at the federal reserve. there is still an envelope of 1.8 trillion to work for. they've gone through about 1.3 trillion. there is still an asset purchase program. but they have confirmed the size , but they slow the pace of that bond buying. that packet has a ton of flex ability. they slow the pace of it moderately, so they set a moderately lower pace with dependent bond program. i will allow president lagarde to go through the semantics in about 45 minutes. in the bond market, what does it mean? not all lot. in the italian bond market, down a couple basis points going into this decision, down a basis point now. euro-dollar right now, $1.1835.

that is basically unchanged off the back of this. let's put this all together. rates unchanged. the pandemic emergency purchase program, the size of it unchanged. the pace of monthly purchases will slow somewhat. what we need to ask going into the news conference, the question outstanding for most of this year, if pepp ends in march or earlier, how much flex ability from that program gets carried over to the asset purchase program, and beyond that, does the app get a boost year? tom: to me, the headline was up moments ago as you are speaking long -- as you were speaking on pepp. what is the response of bundesbank to the 47 headlines

out there showing the first and second derivatives of a model program that is unchanged? jonathan: that's the headline, that inflation may moderately exceed the goal for a period of time. here's the forecasts going into this meeting. the forecast going into this meeting, 1.9% per cpi --1.9% for cpi this year. the news conference is going to be interesting for the forecasts as well. that is what this policy will hinge on going into next year. tom: the dissent here of bundesbank is tangible. jonathan: should we get to maria and frankfurt? maria tadeo joining us now. going into that news conference, what are you looking for? maria: if you look at dealing

which here, the ecb says is transitory, so at this point, the governing council is still very much owned by the doves in that governing council. the other thing that will be key for the press conference is they said we are going to slow the pace of the pepp program, but officials have told me the key here is that christine lagarde will have to make it clear that this is not a paper -- not a taper. the reason they are doing this is so they can forecast for the economy. finance conditions are improving. this is not a taper. that is the message she will have to send. this is very different to what the fed is doing. tom: maria, thank you so much. i love that. jon, would you translate what mortgage a said? this is not a taper -- what maria just said? this is not a taper. jonathan: never mind what the federal reserve is open qe at 100 billy -- at $120 billion a month. you can't imagine where the ecb

totally unwinds up and boosts the asset purchase program next year. a lot of this is going to come down to what happens in the newscast and the forecasts yes well. tom: holger schmieding joins us with berenberg, their chief economist. i want to go to the politics of the moment that i'm sure will be unspoken within the press conference. the traditionalists at the ecb, which you have beautifully enunciated over your career, how does bundesbank respond to this semantic jim cooper hoops -- cementing jumping through hoops? -- semantic jumping through hoops? dr. schmieding: they won't quite like it, but this is only a prelude to the big decision. the hawks are trying to affect

the d.c. decision -- the december decision. mainly, windows the emergency end? when does the -- when does the emergency end? when does the pepp program end? it may give they better clue about the tapering, whether it starts in april or takes longer. jonathan: there's two programs running in parallel. there's pepp on one side, the app on the other. if pepp ends, what does it mean for the asset purchase program? dr. schmieding: it will probably mean that the asset purchase program is beefed up and made moderately more flexible to react to market conditions, but not be anywhere is flexible as

the current emergency program. the compromise will likely be, and my view, this you -- the program will be phased out. at the same time, a program that is open, this will be raised a bit and made more flexible. we will probably learn the details today. today is probably the day where we learned there is a serious debate going on, and they have agreed to disagree. lisa: on the broader level, the message from the ecb is similar to the fed. they will use all tools to get the average inflation rate on target, even if it exceeds temporarily. frankly, they talked about potentially adding accommodation should that become necessary. this was incredibly dovish. you can see bonds in the air are region rallying to a significant

degree. if this basically the market saying that they don't believe the ecb could ever set the goal for inflation? dr. schmieding: this seems to be almost the same as the previous statement, except for there is moderation of the pace of asset purchases, so you can save the bond market reacted already do that. again, the outcome of what we will here in december is open, and the hawks will probably incoming months get even higher inflation rates, transitory but higher inflation rates, to make their point. so that will be very interesting. jonathan: question in the press present lagarde, what is it? the news conference in about 37 minutes' time. dr. schmieding: my key question would be how flexible and the standard asset purchase program be, the open-ended program once

they finally declare the emergency over. it is not just the size of purchases. it is also that element which really, among the hawks, is hotly contested, and that is putting it mildly. jonathan: we did not discuss that at today's meeting. we are committed to financial conditions remaining easy through the projected horizon. holger schmieding, thank you. berenberg chief economist, thank you very much. so he rate change, no rate change, as expected. . . a guidance change. . a pace of purchase change at the ecb. the biggest questions are going to be at the end of the year. when pep ends, how much runs over from the emergency purchase program into the asset purchase program? that will define how easy this ecb is going to be. tom: you are expert on this versus me or lisa.

if belgium and bundesbank can dissent, is that a visible dissent like here? jonathan: often, this is how it points out. we just got the decision. you will get the news conference. to be during or immediately afterwards, you will get a story according to close -- according to sources close to the decision. they will be looking to set the tone going into year end. it is not about reversing the pace of purchases. it is about shaping the program beyond next year and limiting the flexibility for the hawks, at least, in the emergency program from spilling over to the asset purchase program. so there is something for everyone here and do next year. a lot to go through. tom: there's no textbook that covers where we are.

jonathan: let's be clear about that. tom keene, lisa abramowicz, jon ferro. yields in italy down about four basis points. the euro stronger by 0.2%. what a morning. welcome back, tom. this is bloomberg. ♪ >> an exclusive u.s. open update for bloomberg and tennis channel. the women are back in action today at flushing meadows. emma raducanu took out olympic gold medalist belinda bench. she becomes -- belinda bencic. she becomes the only woman outside the top run hundre -- the top 100 to reach the top four.

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>> we are seeing a transitory surge in inflation. >> this is not a market where everything is going to go up. >> this is all about fundamentals. >> when we look at consumer finance in general, there is still potential for the consumer to spend overtime. >> we are actually starting to see that come in the numbers. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. tom: good morning, everyone. an interesting day. lagarde in this hour with her comments on paper,