>> the market is welcoming the fed to move. >> the bond market is a lot smarter than the equity market. >> the equity market is a much better value. >> we think there's more room to go on multiple contraction. >> this has not been a valuation expansion story. it has been in earnings led market. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. lisa: central banks turn hawkish, or try to, but markets are not getting the memo. good morning. this is "bloomberg surveillance" on bloomberg radio and bloomberg

television. jon off, and caroline hyde in london very much in. we've got the bank of england rate hike, and in just about a half an hour, we hear from madame christine lagarde. tom: we also hear from mike. mike is going to be on. mike is someone with the fed, and mike mckee may talk about claims. in all three central bank territories, they're worried about wage inflation and he dreaded wage price spiral. lisa: that is something we have definitely heard. even janet yellen addressed and said she does not see it yet. however, clearly, the employment cost index got jay powell's attention. i am struck by the sanguine nature of markets, even as there's a hawkish tilt on a global level. tom:tom: the terminal value moved out two or three years

yesterday, where we went from a two quarter focus next year, and a live a sudden the chairman was talking about 18 months, or dare i say two years. that is comfortable for ecb. it is normal for the ecb to look out longer. but that is what jerome powell did yesterday. lisa: how much does christine lagarde want to shake the complacency we are seeing in markets. what are we expecting in terms of a surprise from here in 30 minutes? caroline: certainly a focus on flexibility, trying to ensure that her arsenal remains as adept as possible to inflation or pressures we see in europe, and large part because of energy prices. earlier this week, showing that if you strip out the all-important energy prices, inflation running at about 2.5%. above the overall target, but not to the tune we have seen it running at 7%.

how much we see madame lagarde, who is inherently more dovish than the rest of her peers in many ways, just trying to tilt a little bit hawkish. that is what the commentators have said. lisa: i am struck by what is going on in markets which is not a lot. you and ongoing lift towards new record highs in the united states, and seeing a feeling of this is good for central banks to start getting hawkish now. it is amazing to see the 10 year yield lower in the united states even though it rose a bit after the recent move. two-year yields coming down even as the federal reserve says they are going to potentially hike rates three times next year. tom: the mob market -- the bond market has been quiet -- has been quiescent. i think the equity markets have been stunning. futures up 31 continuing, and all you need to know, the dow

jones industrial average is 800 points off the 2:00 bottom yesterday. that is a wow statistic. lisa: i'm also struck by the fact that the 10 year yield is higher. two-year yields have come in, 0.653%. what this means is a steepening in the yield curve, and why? ? how does this make sense, given that perhaps it would be even more, and that the fed is going to allow growth to go quickly and that it will be the same story overseas? caroline: is it the certainty, the clarity we get from the fed, that helps move markets and the way we hadn't anticipated? two hours ago we did see able steepening in the yield curve. however, now we see that flattening, similar to what

happened in the u.k. we are moving in sympathy with gilts, which are higher to the tune of eight basis points. tom: -- lisa: beata kirr of bernstein private wealth management is joining us now. has this all been baked in, or is there something you are gleaning that is the message? beata: what we make of the market reaction to this yesterday as the market cares about clarity and communication. this fed has moved in an extraordinary way, when transit way ruled the day and there was not a knowledge meant of the persistence of inflation. just one meeting later, the mood has shifted completely. i think the market feels confident that the fed is being clear about its communication and is transparent about what it

intends to do, and i think that is really confidence inducing. tom: what part of the equity market, most comfortable in? beata: i am going to go with quality. which companies can control the supply chain the best. which companies have an edge in terms of retention of labor assets and traction of labor assets, and which companies can exert pricing power? it is not an even outcome because some companies are going to be able to exhort that price pressure and really control the supply chain better than others. we see that with both the employment picture and supply chain picture. that is not going to be easily resolved in 2022. tom: what will be the dynamic of margins? the bulls obviously taking a terrific leg up here with the move. what does your chart say about

march dynamics, given what central banks are doing? beata: we feel like that is a risk we have to watch. we see earnings growth next year still in the highs and will digit range, but it is going to be very specific to companies on what they are able to control. there's not that much they can control, whether it is buying their own plan for logistics or distribution, or real changes on the labor cost picture. margins are a key area for us to watch next year. caroline: you can look at into two groups or the way in which you can focus on value for a growth stock, or do you really have to be individual stock name by stock name at this moment? we all anticipated value might get its time in the sun.

many anticipating europe could outperform the u.s. because they are more value in nature than growth, but growth can sometimes help in terms of margins, certainly for big tech. beata: look at the market response yesterday in big cap tech. a lot of the market watch has really believed that when the fed starts raising rates, big cap tech, when you look at their defensive modes around pricing and need for their goods, that didn't happen. we would not be advancing gross, but we don't want to ignore value. we want to remain a global investor as well. you can't deny that xus markets are more attractive on evaluation basis. europe in particular, you got more cyclicals, more financials. so i's omicron makes its way around the world, it may be able to emerge first for more of those value stocks where

valuations are much more attractive. lisa: does it concern you that the consensus is bullish at a time of such an kodaly high valuations? beata: you look at valuations at 21 times, it is not that out of line. i think you would have to look back to rate hikes cycles, and i think we got 13 of them. the s&p is actually up 8% on average in those rate hikes, and that is an important statistic to keep in mind. why did equities have the response they did yesterday? the messaging from the fed is going to be the most important part of what happens in 2022, so we don't look at valuations as incredibly high. we come back to tina, there is no alternative. the flows into equities are

going to continue to be sustained. we think this liquidity in excess savings out there so that. tom: thank you so much. while lisa was asking brilliant questions, caroline hyde and i were not focused. we were focused on premier league football. this release because to the challenges for andrew bailey and the challenges of the nation. the prime minister, france with really strict new regimes on the united kingdom. the athletic confirming that tottenham and lester -- and like sister -- and -- and like chester -- and leicester will not play. caroline: people are worried about getting into stadiums. the moment, you don't perhaps need a vaccine to be able to go

to a big football match. it is not like it is in new york. tom: what about the schools in the united kingdom? lisa has lived this in real time. so have i, frankly. lisa: so much fun we are having. tom: caroline, with all of your connections, what are the schools like in england? caroline: i got a message earlier this morning from one of my greatest friends saying the schools are warning they might shut and go back online in the new year because of covid-19. a key worry among parents. tom: it is about the variants, but also about the time of year. futures up 27. this is bloomberg. ♪ taylor: -- laura: instead, it is

leading the fight against inflation. in a surprise move, the central bank raised interest rates for the first time since the pandemic struck. policymakers voted to lift borrowing costs by 15 basis points to 0.2 5%. investors are betting that federal reserve chair jerome powell can pull off the proverbial soft landing of the economy. stocks in u.s. futures are rising with speculation that fed policy tightening will help fight inflation without derailing growth. the central bank will speed up the drawdown of its asset purchase program. it has also laid out a roadmap for a series of interest rate increases area the former ceo of mcdonald's will return $105 million in cash and stock awards to settle a lawsuit by the fast food chain. he was fired over his sexual relationships with subordinates. mcdonald's says the amounts represent what he would have given up had he been fired. france is taking its own steps

to fight omicron, restricting arrivals from the united kingdom. all of those arriving from britain will have to have a negative virus test less than 24 hours old, plus test again on arrival and then isolate for at least 48 hours. australia's qantas says it will buy 40 airbus jets and there's an option to buy 94 more planes. they will replace qantas' aging fleet. 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 bloomberg -- this is bloomberg. ♪

♪ >> if you look at the fed's forecast, and some ways it doesn't really hang together.

the unemployment rate below their estimate for three whole years, and inflation just magically melts away back towards the 2% objective, even though they haven't made monetary policy tight at any time over this period. so it is a bit of a magical forecast. tom: that is the former public official of the new york federal reserve, william dudley, with i thought really nuanced criticism yesterday of how far behind this fed is. we thank william dudley for supporting bloomberg opinion and "bloomberg surveillance" each morning. we are waiting for the lagarde press conference. mike will attend in 12 minutes to talk claims in the united states. right now, parachuting in, steve englander joins us, working for standard chartered. we are thrilled steve englander could attend this morning. chairman powell changed the

x-axis yesterday. he was on the edge of draghi and tried to pull the discussion out to 2023 and 2024. what does the lengthening of the said'-- of the fed's vista mean for the u.s. dollar? steve: i agree with what bill dudley said, that the fed ends up being more dovish than the token withdrawal of stimulus, and the dollar is going to fall. i think that the circumstances we are likely to find next year when rate hikes are going to be on the table will be somewhat different, and they probably won't be quite as hawkish as they made the and sells out to be yesterday. lisa: is that basically the bet in markets now, that the fed is not going to come through on

some of its projections for as many as three rate hike eggs -- rate hikes next year? steven: looking at the forecast, the inflation rate is up 0.5% in 2022 and 0.25% in 2023. all you have is 0.25% more rate hikes, so from that, zero rates are objectively more negative than they were before. the market is kind of saying they are not over-the-top, and that was the big fear going into the meeting. our questions weren't are they going to stick to $50 billion. the question was if they are going to go to zero. the market was scared and leaning in the hawkish direction, now it is pulling back. lisa: what is your view on the dollar, considering that people have the most overweight going back to 2015, thinking the

dollar will strengthen next year after what may be its biggest annual gain in six years? ? is it premature to make that bet, that this is one of the most likely bets to get upended as the fed is likely to disappoint, as is being commuted gated -- being communicated to us by the market? steven: there are two forces driving of the dollar. one is the inflation numbers have been much higher-than-expected. but i think the market is also underestimating the risk off factor by covid. first the threat of delta across the world, and no concerns about omicron. both of those together are very dollar positive. we expect both of them to fade over time. in the short term we are getting news and bad inflation news. once that passes, which we think will be at the end of q2, we see

dollar weakness ahead, and an extended period of dollar weakness. caroline: it was interesting that we got a shout out from jay powell yesterday regarding currency hedged treasury yields. this is why the long end has been so bid, because once you hedge up the ethics risk -- the fx risk, it is still a great buy. does this change your perspective? steven: i think he was stressing that a bit too much. that is something of a factor in terms of buying dollar, but i don't think it is an enormous factor. interest rates in the u.s. are negative as far as the eye can see, and if you don't believe in what we call immaculate disinflation, they are likely to stay negative for an extended period. tom: one final question, if i can.

this goes to your cross rate work. how fragile is em right now? you are the guy that monitors this. how fragile is em? does it harken back to the fears of stan fischer of decades ago, or is it a new em more resilient? steven: parts of it are more resilient. i think the investors are looking at chinese government bonds, seeing cnh very stable. there are other bits and bonds the benefit from higher oil prices that are doing well. i think a lot of bad news is priced into em. i think the market understands the issues in the short term that em is facing. if we are right that things look better as we get past covid, and the fed isn't quite as hawkish as advertised, there's a lot of

room for em to go up, but right now everyone needs to be cautious. tom: steve englander, greatly appreciate it this morning. we are going into claims in seven minutes, and we've got to come back with a fed brief. what is so important to understand is the scope and scale of excellence at bloomberg surveillance. if you are a newbie on the block like the lovely colby smith over at "the financial times," you are colby smith. and if you are michael mckee, you are mike. we will go to mike. michael: we know who that is. tom: on a first name basis with the fed. what was the surprise yesterday and the press conference, mike? michael: i think it was that powell is so deft in convincing markets the fed was on top of inflation while delivering the news that they may get a bunch of rate hikes in late 2022. tom: we are going into lagarde.

what is the distinction where the ecb goes out further and shows dates 2023, 2024, and even sometimes 2025? we really don't want to talk the timeline, do we? michael: the fed wants optionality. they want people to be able to guess at what they are going to do and have the opportunity to change their minds. the ecb is still kind of in the same boat. they are setting forward expectations at this point that they will be raising rates too soon because they are still worried about the effect of covid on the economy. when you look at the pmi's that came out today that were weak, you have seen, problems that we are not experiencing here in the united states. tom: mike, thank you. i have been dying all morning to do this. i thought that was just great. really important questions in the press conference. did you do a follow-up in the press conference? michael: no, i didn't.

tom: there you go. a polite mike yesterday and the press conference. lisa: stocks risk on, bonds confused. tom: we are going to come back on claims and on christine lagarde. stay with us. this is bloomberg. ♪

tom: bloomberg surveillance, christine lagarde and the ecb will speak in moments. michael mckee with us with the state of the american labor economy. an economy where jerome powell is worried about wage inflation. what you see? michael: we are looking for the claims numbers. here we go. 206,000. that is not what the market was expecting at this point. the issue is it is very hard to seasonally adjusted target the holiday season. you will get these -- to seasonally adjust during the holiday season. you will get these kinds of numbers. the other big numbers, housing starts are up 11.8%.

are we on fire as they would say for housing starts? building permits are up 3.6%, giving you the impression they will continue rising. 1,000,600 ever did -- 1,679,000 annual rate for housing starts. that is up from the prior month. a significant boost the housing. hard for me to know why because the weather -- it is better than expected so may be on a seasonally adjusted basis. this is the time of year where you think you might see a slow down. the philadelphia fed down to 15.4 from 39. a significant drop on the philly fed. i do not have the breakdown of the underlying numbers but we will get that. lisa: you are seeing yields

higher, you are seeing stocks a touch lower on the heels of this data, highlighting the expectation for more inflation, at least when i look at the housing data. continuing claims the lowest since march 2020. you can see the euro strengthening, 1.1339. the 10 year yield off its earlier highs. crude still stable. the fact we are continuing to see the strength, i am struck by the housing market being so robust. how much does this support the idea of inflation being lingering give it will take a while for supply to come on the market? michael: it does suggest we will have shortages in building materials. with prices rising, builders are still very confident they can break ground and sell their houses. the single-family rate rose

11.3% in the multi family starts were up 11.8%. this is evenly divided. usually you see one of the other take the lead, but in this case starts for apartments and single-family housing very strong. tom: will go one more question with michael mckee and then we have christine lagarde. as caroline hyde mentioned, talking about the topic of europe, not omicron but the rising energy prices. might siegler observation yesterday is this is a well-meaning central bank struggling with the china like boom economy. how they adapt to 8% real gdp plus 4% or 5% inflation? you have never seen this. how does the fed adapt to the boom of the moment? i do not think they have to adapt because economic observers believe is that growth will

slow. we are getting a boost from the delayed effects of the pandemic assistance. as that fades and we get a fiscal break, growth will slow. it remains above trend but it will not be quite as strong. if inflation does not slow in you have 8% growth, you have some scope for slowing the economic demand in the economy. tom: each headline matters. it matters from andrew bailey, from chariman powell to mike mckee in the press conference. lagarde speaking on inflation settled below target. let's enjoy christine lagarde in frankfurt. pres. lagarde: a lower pace than in the previous quarter. we will discontinue net asset purchases under the pepp at the end of march 2022.

second, the governing council decided to extend the reinvestment horizon for the pepp. it now intends to reinvest the principal payments from maturing securities purchased under the pepp until lease the end of 2024. in any case, the future rolloff of the pepp portfolio will be managed to avoid interference with the monetary policy stance. third, the pandemic had shown that under stress conditions, flexibility in the design and conduct of asset purchases has helped to counter the impaired transmission of our monetary policy and made our efforts to achieve our goal more effective. within our mandate, under stressed conditions, flexibility will remain an element of

monetary policy whenever threats to monetary policy transmission jeopardize the attainment of price stability. in particular, in the event of renewed market fragmentation related to the pandemic, pepp reinvestments to be adjusted flexibly across time. asset classes and jurisdictions at any time. this could include purchasing bonds issued by the hellenic republic over and above rollovers of redemptions in order to avoid interruption of purchases in that jurisdiction, which could impair the transmission of monetary policy to the greek economy while it is still recovering from the fallout of the pandemic. net purchases under the pepp

could also be resumed if necessary to counter negative shocks related to the pandemic. fourth, in line with the step-by-step reduction in asset urges as and to ensure the monetary policy stance remains consistent with inflation stabilizing at our target over the medium-term, we decided on the monthly net purchase pace of 40 billion euros in the second quarter and 30 billion euros in the third quarter under the asset purchase program. from october 2022 onwards, we will maintain net asset purchases under the app at the monthly pace of 20 billion euros for as long as necessary to reinforce the accommodative impact of our policy rates. we expect net purchases to end shortly before we start raising

the key ecb interest rates. we also confirmed the level of the key ecb interest rates at our forward guidance on the future path of policy rates. this is crucial for maintaining the appropriate degree of accommodation to stabilize inflation at our 2% inflation target over the medium-term. we will continue to monitor bank funding conditions and ensure the maturing of peltro three operations -- of tltro 3 operations does not impair the smooth transmission of our monetary policy. we will also assess how targeted blended operations are contributing to our monetary policy stance. we expect the special conditions applicable under tltro three to

end in june of 2022. we will also assess the appropriate calibration of our two tier system for reserve renumeration so the negative interest rate policy does not limit banks intermediation capacity in an environment of ample excess liquidity. the governing council stands ready to adjust all of its instruments as appropriate and in either direction to ensure inflation stabilizes at its 2% target over the medium-term. i will now outline in more detail how we see developments in the economy and inflation. i will then outline our assessment of the financial and monetary conditions. looking at the economic activity. we expect the economic recovery to continue, driven by robust

domestic demand. labor market is improving, with more people having jobs and fewer in job retention schemes. this supports the prospect of rising household income and consumption. the savings built up during the pandemic will also support consumption. the current fiscal and monetary policy support together with the continued global recovery should support growth. economic activity has been moderate over the final quarter of this year, and this slower growth is likely to extend into the early part of next year. we now expect output to exceed its pre-pandemic level in the first quarter of 2022. to cope with the current pandemic wave, some euro area

countries have introduced tighter containment measures. this could delay the recovery, especially in travel, tourism, hospitality, and entertainment. the pandemic is weighing on consumer and business confidence , and the spread of new virus variants is created extra uncertainty. in addition, rising energy costs are a headwind for consumption. shortages of equipment, materials, and labor in some sectors are hampering production of manufactured goods, causing delays in construction and slowing down the recovery in some parts of the service sector. these bottlenecks will still be with us for some time. they should ease during 2022. looking ahead, we expect growth

to rebound strongly over the course of 2022. our euro system staff projections receipt annual real gdp growth at i .1% in 2021, 4.2% in 2022, 2.9% in 2023, and 1.6% in 2024. compared with our september staff projections, the outlook has been revised down for 2022 and up for 2023. targeted and growth friendly fiscal measures should continue to complement on a trade policy. this support will -- complement monetary policy. this will also help the economy adjust to the structural changes underway.

an effective implementation of next-generation eu program and the fit for 55 package will contribute to a stronger, greener, and more even recovery across euro area countries. let's look at inflation. inflation increased further to 4.9% in november. it will remain above 2% for most of 2022. inflation is expected to remain elevated in the near term, but we expect it to decline in the course of next year. the upswing in inflation primarily reflects a sharp rise in prices for fuel, gas, and electricity. in november, energy inflation accounted for more than half of headline inflation. demand also continues to outpace

constrained supply in a certain sectors. the consequences are especially visible in the prices of durable goods and those consumer services that have recently reopened. face affects related to the end of the vat cut in germany are contribute to higher inflation, but only until the end of this year. there is uncertainty as to how long it will take for these issues to resolve. in the course of 2022, we expect energy prices to stabilize, consumption patterns to normalize, and price pressure stemming from global supply bottlenecks to subside. over time, the gradual return of the economy to full capacity and further improvements in the labor market should support faster growth in wages.

markets and survey-based measures of longer-term inflation expectations have remained broadly stable since our last monetary policy meeting in october. overall, these have moved closer to 2% in recent months. these factors will help underlying inflation move up and bring headline inflation up to our target over the medium-term. our new staff projections for see annual inflation at 2.6% in 2021, 3.2% in 2022, 1.8% in 2023, and 1.8% in 2024. significantly higher than in the previous projections in september. inflation excluding food and

energy is projected to average 1.4% in 2021, 1.9 percent in 2022, 1.7% in 2023, and 1.8% in 2024, also higher than in the september projections. turning to risk assessment. we see the risks to the economy -- to the economic outlook as broadly balanced. economic activity could outperform our expectations if consumers become more confident and save less than expected. by contrast, the recent worsening of the pandemic, including the spread of new variants, could be a more persistent drag on growth. the future path of energy prices and the pace at which supply

bottlenecks are resolved are risks to the recovery into the outlook for inflation. if price pressures feed through into higher than anticipated wage rises or the economy returns more quickly to full capacity, inflation could turn out to be higher. looking at financial and monetary conditions. market interest rates have remained broadly stable since the october governing council meeting. bank lending rates for firms and households remain at historically low levels. overall, financing conditions for the economy remain favorable. lending to firms is partly driven by short-term funding needs stemming from supply bottlenecks that increase the expenses for inventory and working capital. at the same time, corporate

demand for loans remains moderate because of retained earnings and generous cash holdings, as well as high debt. lending to households remains robust, driven by demand for mortgages, euro area banks have further strengthened their balance sheets thanks to higher capital ratios and fewer nonperforming loans. banks are now as profitable as they were before the pandemic. bank funding conditions remain favorable overall. in line with our new monetary policy strategy, twice a year the governing council assesses the interrelation between monetary policy and financial stability. an accommodative monetary

policy underpins growth, which supports the balance sheets of companies and financial institutions as well as preventing risks of market fragmentation. at the same time, the impact of accommodative monetary policy on property markets and financial markets warrants close monitoring as a number of medium-term vulnerabilities of intensified. still, the macro policy remains the first line of defense in preserving financial stability and addressing medium-term vulnerabilities. summing up, the euro area economy continues to recover despite a slow down in the near term. the sharp increase in energy prices and demand outpacing constrained supply in some sectors are pushing up inflation. inflation will remain above our targets for most of 2022.

it is likely to ease in the course of next year. given the progress on economic recovery and towards our medium-term inflation targets, we can discontinue net purchases under the pap in march. monetary accommodation is still needed, including net purchases under the app and our forward guidance on interest rates for inflation to stabilize at our 2% inflation target over the medium-term. we are now ready to take your questions. thank you. >> thank you. the first question goes to politico. thank you. >> in you hear me? thank you very much. president lagarde, the plan you

laid out in terms of asset purchases implies no interest rate hike until 2023. given the high uncertainty surrounding the forecast at the moment, how can you feel confident to commit to such a long period? if you look at the policy meeting last year, you projected inflation to average 1% for this year, and now to be more than twice that. my second question is, on the emergence of omicron, to what extent has that been reflected in the new projections and how do you expect the emergence of the new variant to impact inflation? thank you very much. pres. lagarde: thank you very much for your question. you identified one factor, which is uncertainty. we spent a large amount of our

time during the governing council meeting addressing the issue of uncertainty in the face of what i have described as a strong recovery. you have a strong recovery with unemployment going as down as we have seen. 7.3% at the moment. our projection for unemployment is 6.6% at the end of 2024, number we have never had. we also have inflation moving towards our target. on the other hand, we have the uncertainty of omicron, and it is not just omicron. it is the fourth or fifth wave of the pandemic that is affecting some of the european countries more than others.

omicron is in development and yet to be assessed in terms of economic impact. we have added uncertainty which has to do with the two items which have fueled the increase in our inflation projection for 2022, which is the price of energy and the constraint between strong demand and constrained supply, particularly in some sectors such as production of goods, notably automotive which comes to mind naturally. we have that contrasted situation of strong recovery, reduced unemployment, inflation moving towards our target, and on the other hand the uncertainty resulting from pandemic evolution as well as

the uncertainty around energy prices at the miss adjustment between strong demand and constrained supply. in the face of all of that we make decisions which are in line with what we had initially intended, which is to gradually reduce the amount of purchases that we are going to make in the next few quarters. as a result of that, we have decided we will discontinue pepp at the end of march as was initially considered, and we will reduce the pace of purchases in the next three months so we have this gradual movement declining from where we are at the moment. we did not want to have a

transition that would be hurting , and we also need to continue this progress towards our target and arrive at target, which we are not at yet at this point, which is the reason why we decided to increase the volume of purchases under the app, but to increase it with a decline over the course of q2, q3, q4. we are not making any specific commitment. we land at 20 billion euros in october and we keep it open and we will maintain it at 20 billion euros until such time when we arrive at our target, which is 2% over the medium-term. given the uncertainty, we also

wanted to have as much flexibility and as much optionality available, hence the reason on the account of pap we have decided to extend the reinvestment period, at least by one year. we have also decided to keep it open ended. we are driven by data. we will be reviewing next march, as we receive updated projections, we will reassess. as it says clearly in the statement, we will adjust in either direction depending on the data we receive. suffice to indicate that under the present circumstances, it is very unlikely that we will raise

interest rates in the year 20 to 22. we have to be very attentive to what data tells us. even more so when we get projections that are ecb projections. to come back to your question about the impact of omicron, we are venturing in the realm of uncertainty. it will have impact. in the first place we should knowledge that our economies have become more resilient, stronger, and are more capable of adjusting wave after wave and variant after variant.

we do not know a lot from the scientific world as to the actual hardship of the virus and how bad it is relative to delta. the economy is more resilient. in might have a dampening impact on demand because people will consume less, people will be under restrictions. it might also have an impact on the supply side as well. the balance between inflationary and deflationary impact omicron will have is still totally uncertain. in view of this uncertainty and with a strong recovery, we believe it is the right place to be to gradually decline over the course of time, but keep

flexibility and optionality in order to respond to chain of circumstances -- to change of circumstances. >> the next question goes to reuters. please. >> sorry. first question is about alternatives you discussed in the meeting. did you discuss an envelope and how strong was the backing behind the eventual decision? the second question is about flexibility. did you discuss transferring any of the flex abilities of pepp to the app, and if not are you confident app, under the volumes decided today, can function with the current framework, especially the issue --

pres. lagarde: thank you for your three questions, if i counted them well. on your first one, there is so much in the set of proposals that are comprised in this monetary policy statement that we have discussed extensively all of these alternatives and proposals you have in front of you. we did not have a lot by way of alternative one, 2, 3, four. there was so much work put into preparing this meeting, both in terms of macro economic data projections confronting the central numbers. we are aggregate them with the central banks, defining the monetary policy proposals that we debated what you have in this document. this was the heart of the