>> we came into the year pretty optimistic about the economy. we have a similar view for february. >> i think we will look back and say this was europe's year. >> the focus really will be on the ecb. how far can the ecb go? >> i know it is a very popular narrative that the ecb has to act. >> all christine lagarde can do is to slow down the process. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathan: from new 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. facebook getting absolutely hammered in the premarket, taking down the nasdaq by more than 2%. we need to talk about the bank of england. they hike 25. some people want to even more than that. tom: for those in america, this

is really important. it is across the atlantic, but this links right into the fed meeting in march. jonathan: some voting for a 50 basis point hike. i am not sure many expected that this morning. lisa: there's a hawkish tone on beginning the unwind of quantitative easing. danny blanchflower saying they should not do that, of course. we are seeing a move that is pretty strong in the u.k. two-year yield as they climbed to some of the highest levels in a long time. i just wonder what the goal is, given that so much of this is from energy. jonathan: on the corporate bond purchase program, they are looking to fully unwind all of that. there are votes out there for a 50 basis point hike. to be clear, they delivered a 25 basis point hike. you've got to imagine, there's more to come. when we got the last interest rate hike and it was just 15 basis points, we were thinking,

they are dipping thereto -- dipping their toe. if they are voting for 50 basis points, there going again. lisa: in the united kingdom, the highest going back to 2011. you asked a great question. how much is this going to turn potential growth into a contraction at a time when people change their spending behavior in the face of a more than 50% increase in energy bills? jonathan: it is fascinating. on the same morning we have the energy regulator raising the energy cap to try to offset that, we've got the bank of england raising interest rates by 25 basis points, and some people would like that 25 basis points higher than it is right now. tom: we will go to peter oppenheimer, but let me ask you, is the bank of england showing a certain courage where we see reticence at the american fed? jonathan: looking across the central bankers of recent years,

governor bailey does not want to hold your hand like governor carney did in markets. that is not a criticism of governor carney. governor bailey just seems to be communicating in a very different way, getting it done sometimes when people don't expect. not getting it done when they do expected. peter oppenheimer joins us now, chief global equity strategist at goldman sachs. it is a bizarre moment, trying to offset the pain of energy prices. may be more down the road. what is your take on all of this? peter: as you say, it is not an unexpected move, but it is a necessary move given the rise in inflation, and also the significant tightness in the labor market. as you said, there are similarities here with the u.s., so i think markets will be watching very closely the action in markets. but it is a difficult decision because while you are seeing

these higher inflation pressures, at the same time the cost of living is going up. you've just seen a big rise in energy -- tom: peter, that is ok, you can put david on hold. it is not a big deal. [laughter] continue. peter: thank you very much. there is a squeeze in energy prices coming through, and of course, there's also an increase in national insurance taxes, so this will affect consumers as well. in the end, the economy is robust enough i think to withstand the effects of rising rates, and i think, as you say, this is a situation which all central banks are now facing. it is still appropriate, given inflationary pressures, to keep interest rates at what were emergency levels in the face of the pandemic. jonathan: we are at 50 basis

points right now. we are pulling forward the 1% line in the sand to may. can you walk us through how important the bankrate is at the bank of england? they kick in, and the banks follow almost immediately. peter: they do, absolutely. it will affect borrowing rates. remember also, mortgage rates in the u.k. are a large proportion, unusually relative to other country. so you will gradually start to get this squeezing through into bank lending rates and the broader economy. tom: a little bit of sterling strength this morning. we are so honored to have you here. peter holds one of the most prestigious undergraduate degrees in the world with first class honors, a geography degree at the london school of

economics. i want to go all lionel robbins on you. this moment seems like we did the pandemic, and the financial bigwigs won, and a lot of other people lost. how do bankers across your geography, the ecb, the bank of england, the fed, and all the other central banks, how do they get us out of this, extract us and provide stability at the same time? peter: i think the first thing we should recognize is that the economies are recovering, despite the obvious panic given the speed of the adjustment in rate expectations. we are looking at global growth this year to be about 4.3%. that is still a percentage point higher than the long-term trend. so you have to think in the context of that, and facing some important inflation area -- important inflationary pressures

, it does make some sense. i think that in some ways, the central banks will be quite happy with the reaction we have seen so far. it has not been a panic. as recently as june of last year , the consensus was looking for no rate rises in the u.s. this year and perhaps one at the end of next year. we are now seeing a whole sequence of rate rises that has been priced in, and risk assets are holding up. there is nothing systemically problematic at the moment, so gradually weaning economies off of zero interest rates in a period of reasonable growth, but higher inflation, i think makes sense, and we will probably see more of it. lisa: the issue of how you trade around it, you have been talking about the value trade, yet i am struggling with financials at a time when each rate hike is met with more yield curve flattening. we have seen it in the u.s., the

u.k., and throughout the euro region. peter: firstly, i should say we have been recommending a focus on value. we think that anymore inflationary environment -- that in a more inclusionary environment, these do look more attractive. but we do like banks as well. you are right, a flattening yield curve is not ideal. on the other hand, any rising rates, particularly in the euro region, will be quite helpful for the banks so long as the economies remain robust. i think the time worrying about that sector is when you would get a rollover in growth, and we are not in that failure. in europe, we are quite optimistic on growth. we've got u.k. growth this year at around 4.5% compared to about 3.2% in u.s. we are looking at over 4% growth in eurozone. i think given that growth, the

banks will still be able to absorbency yields an environment -- to absorb yields in an environment where rates are rising. tom: what does goldman have to say about amazon this afternoon? peter: i would want to make a distinction between unprofitable tech companies, and we have a basket of those which have fallen very significantly as interest rate expectations have increased, and other growth areas of the market that are profitable with strong balance sheets and our cash generative, and were not that extensive to begin with. i think that we are starting to see some growth areas of the market also coming back to levels which look reasonably attractive given quite solid fundamentals. so our view is that while we have like value -- we have liked

value, we don't want to be only in value. there are certain areas of growth which makes sense. i think this combination of factors will continue to dominate in a way we did not see in the last cycle, which was very much focused on just one factor, and that was growth alone. jonathan: you are a good man for rolling with us with that bank of england decision. come back soon and we will talk more about equities. that was not the 5-4 vote we were looking for. five voting for a 25 basis point hike, four voting for 50. unreal. tom: can you imagine that in america? jonathan: not what i expected. cable, 1.3620 on sterling. lizzie burton of the team leading the coverage out of london. 7.25% is where they see inflation in spring for the bank of england. that prompt at some of these

officials to go harder and vote for more. tom: this bodes well for our visit to london in the coming weeks as well. team "surveillance" over in london. see how that goes. right now we mix part of this pandemic and the medicine, the miracle medicines that have helped all of us through the pandemic, and also look at the ability to run a pharmaceutical company. rob davis is president and chief executive officer at merck. it has been a tool to us -- a to mulch was -- a tumultuous two years. i know of the miracle for rubella conceived by merck in the 1970's. here is the criticism. you guys missed pfizer-moderna boat. respond. rob: i look at what the company has done, and i am proud of our

ability to contribute to the covid-19 situation. this is an all hands on deck situation. obviously we brought forward an important antiviral drug to help in the fight against covid-19. it reduces the risk of desk by about 90% -- of death by about 90%. we think about battling covid-19, this is an important drug, so we feel good about it, and this is about what do we all do to address this more than it is looking at comparisons. tom: i agree with you totally. when we talk to the medical experts, they are screaming for efficacious drugs for the poor, for those who can't take advantage of mrna for duration or even the -- mrna refrigeration or even the expense. how do you combine with the ability to once and for all take care of covid worldwide for the great number unvaccinated? robert: i think that is a great

question, and some important -- and so important. this is a drug you take orally. it is obviously easy to supply, easy to get around the world. one of the things i am most out about is -- most proud about is the first of its kind access strategy to make sure we can get this to parts of the country and around the world that need it. so i feel really good about what we are doing. tom: what do you need from joe biden to affect this? what do you need from washington to get your drug and the competition's drugs out to people in the sahara? robert: a lot of this is not only what we do with u.s. governments, but how we partner around the world, like what we did with unicef recently. the efficacy of these drugs, the safety of these drugs, get the message out about how you can get them. that is what we are trying to do

, is make people understand how they can find them and take them because they do make a difference. we still have in the u.s. 2000 people die in a day from covid-19, and you have a drug that reduces the risk of death 90%. we can make a difference. we just have to continues to get the message out there. lisa: how difficult is it to determine how much to charge for this given the public health need and the fact that the government is stomach and most of the bill -- is stomaching most of the bill? robert: we bring the availability of governments around the world to be able to give access to their own populations, so we put in place a tiered pricing strategy aimed at what is affordability based on economic conditions in the local market to make sure we can give access to the patients that need it while ensuring we also continue to make the necessary returns to invest for the next innovation down the road. lisa: there has been criticism

around vaccines for influenza, for other viruses, as not being particularly profitable might yet we have this being one of the biggest health crises in modern history. how do we reframe how we think about vaccine develop meant after it has not -- vaccine development after it has not been a hot spot a number of years? robert: we have to keep making sure that people understand that vaccines in general are one of the greatest health contributions that have ever been made. if you look at the people and the lives that have been impacted by avoiding disease, it affects everyone in the united states, everyone around the world. we talked about, mark. -- about mmr. using about the number of childhood diseases we have avoided. it is part of driving forward a healthy population, and we look at the returns necessary to ensure people continued to want to invest capital behind that.

that is what we are very much focused on. tom: cancer drugs cost $50,000, and your competition bristol myers are iconic in cancer treatments as well. your pill for covid has a treatment price of roughly $100. that is chump change compared to what it costs to hospitalize an unvaccinated person in america. can you explain to our audience why merck and joe biden can't get on the same page to take your drug and solve the unvaccinated problem? robert: i think it is a matter of looking at partnering with u.s. government. the u.s. government, we have actually delivered already to the u.s. government about 3 million courses of the drug by roughly the end of this week, so we are working with the government. they are supporting us. i think it is just about us collectively getting the message out there and ensuring that the drugs are into the locations

where patients can get access to that is where we are focusing our partnership with u.s. government to try to drive that message. jonathan: rob davis, thank you, sir, ceo of merck. futures down more than 2%. sterling breaking out. just an unreal move. this was not the 5-4 vote that anyone was looking for. catherine mann, good friend of this program, voting for a 50 basis point hike with three others. they go with 25. it could have been more. this is not part of the conversation coming into this. the conclusion to me, we are leaving behind the era of handholding and warm, fuzzy guidance from central banks, and governor bailey is leading the effort. tom: that may be some of the m.i.t. reality from dr. mann. her ownership of the dysfunction between china and america is just one example. i need you to reframe why this

meeting is so anti-david blanchflower. jonathan: danny did not want a hike,. -- did not want a hike, full stop, and they've gone 25 and could have gone more. the federal reserve has come out is a lot of communication over the last few weeeay played down the 50 basis point hike. that might change after the next cpi print, so what i am saying now might be dated in a month. for now, they're pouring water on the 50 basis point hike. the bank of england, there has hardly been in lake ayden's -- been any guidance since the last hike. lisa: you do wonder if federal reserve officials have been looking at forward guidance on inflation that is more nuanced and sees more rapid increases. i do wonder whether a disappointing print on the labor market report tomorrow actually is indicates tighter labor market, a lack of workers, and

wages going up faster. jonathan: we will see, and then it is onto the cpi print next week. we'll get another cpi print before the next meeting. patrick harker of the philly fed says the inflation data matters, and he might change his view on a 50 basis point hike. for the u.k., i think the conclusion is that they will go again. that is why they are bringing in the 1% line in the sand all the way to spring, early summer. tom: i think it is something global wall street understands. these are two stunningly different economies. i take issue with the bank of england linkage over to the fed. these are hugely different structured economies. for that matter, can we posit now that the u.s. and the ecb and the greater european content maybe have more in condon -- maybe have more in common then an island nation, the stereotypes we all have about the united kingdom? jonathan: you might make that argument. as far as the central banks are concerned, the fed is going to get going seen.

the ecb, that decision in 25 minutes, they are trying to push this conversation into the distance. how sustainable is that effort? i've got no idea. but the federal reserve is going to follow where the bank of england is going at the moment. road trip. i thought so. tom: one week in london. jonathan: catch up with governor bailey. tom: i can see us in rome. jonathan: the announcements this morning are going to hurt a lot of people. that increase in the energy cap for long -- for low income households. for anyone on a very able rate mortgage and the u.k., the next month is going to kick in almost immediately. if you basis points, up just like that. so many of the loans in the u.k. are benchmarked to the bankrate of england. that is something governor carney was very sensitive to. it is very different in terms of the translation of rates in the u.s. tom: is there a linkage of the bank of england to the politics we see in the house of commons like there is in the united states? jonathan: certainly the chance

that it fuels the cost of living. when we talk about gdp increase coming into 2022 that we don't have the feeling that things are good, and it is because inflation is where it is, and they are forecasting at the bank of england inflation north of 7% in the spring. i think that is what spooked people on this mpc today. tom: really emphasizing years ago the gains of this pandemic stimulus, how much of it has gone to the elites, to the haves , where so many other people are struggling. that is the battle all of these bankers have. jonathan: if you have been long the market, it is all good. clearly, for some people, things don't feel good at all. lisa: this is illustrated by the real wage picture, which is the most negative it has been in a long time. if you have people who feel less good at a time when the dollar goes less far, how do you then

parlay that into growth rather than disinflation or deflationary environment? jonathan: should we turn now to danny blanchflower? have we got danny with us? let's get your response to this, please. danny: i think it is more confusion from our vote of 5-4, with four people voting for a 50 basis point rise, and then you start to read the report, and it is like out of dreamworld. it talks a lot about the economy being at full employment, but i was just looking, i just tweeted out the employment to population rate is over 4% below where it was at the start of the pandemic. employment is down 400,000. it may plummet the labor participation rate down. wage growth has slowed dramatically every month in the last six.

this forecast says inflation is coming, but there's a strong forecast of unemployment rising in the u.k. economy as a result. so i think back to the story, energy prices are going to rise, but this is going to slow the economy more on top of the fact that it was slowing to start with. so i think this is really pretty interesting, and it does certainly signal that there's more rate rises coming, but it is extremely incoherent, especially given that the lack of communication over the last two meetings. so confusion reigns. i don't believe the forecast, that they are forecasting a rise in wage growth, despite the fact that wage growth has been plummeting. so i think this is a world of guessonomics, and they will learn to regret this decision

until their dying days. jonathan: i will talk about market pricing, and you tell me what the consequences are and why they are going to live to regret it. the team at bloomberg tracking the market pricing. been giving lynn rate hitting 1.5% in september. -- bank of england rate hitting 1.5% in september. that has been brought all the way back in. the consequence of getting to 1.50%, with inflation accelerating and not dying down, what are the consequences? how bad do you think it will be? david: i think what you said is completely right. you read it with a sort of degree of certainty, like this is what is going to happen. so i think the reality is they simply don't know. they simply don't know the extent to which inflation is just going to fall. they don't know how the virus is going to proceed. they don't know what long-run changes in behavior are going to be.

presumably people are going to stop spending. this is going to slow the economy. so much of what they have talked about is data dependent, but they don't seem to have actually noticed that the economy is slowing -- is growing fast. it is the fourth fastest growing economy. they also talk about they are going to stop reinvesting maturing assets. this is really a signal of a very significant tightening. the prospect of what you've talked about happening by the end of the year is essentially nil. tom: david blanchflower of dartmouth college is with us, former member of the bank of england. for those of you in america, a profound decision by the bank of england. they do what has been talked about in america, but what we have not seen from the fed, with significant tone of higher rates. sterling at a 1.136 level.

-- a 1.36 level. kit juckes of socgen says the five-year five-year forward swap, the measurement of inflation out there is already trending down. is that what you see in your data, that the central banks are affecting policy for yterday, may before today, and you disagree withth are fighting the wrong battle into the future? david: i do think so. the question in a sense is what is there to suggest he pricing increases we saw over the last 12 months, a lot of it driven by supply-side investment, will repeat themselves in 2022? i see every likelihood that we are going to see a slowing of inflation naturally coming. people stop brian -- stop buying highly priced goods. just looking back to the data since 2008, this is almost exactly the mood music in

august, september 2008. 12 months later, inflation in the u.k. was at 1%. if you look at the data on inflation, it spikes. what goes up does come down. there is nothing to suggest that fundamentally, workers bargaining has suddenly increased, and we are going to see inflation fall like a stone. tom: i am going to steal from stan fischer here. the basic idea is we are accommodative right now, and all they want to do is get back to some form of neutrality and not restriction. is your reading of history they can be successful at managing this to neutrality rather than overshoot to restriction? david: how can you get back to normality when the world you are in is an unusual one? in 2008 you are hit by a giant

financial crisis shock which was a downward hit to the economy. what you have seen in the last two years is a huge hit to the economy from the coronavirus, which is still impacting people's behavior, still impacting whether they will go to the cinema, go on a cruise, taken airplane. this thing isn't over. to say you can go back to normal when the world isn't normal, this is in gaga land. pretend everything is back to normal, even though it isn't. lisa: there are some real consequences for the bank of england making this move. i am looking at the pound versus the euro, the strongest now going back to 2016, which ultimately should help them bring inflation down. should help it drop like a stone, like you said, which on a net basis, should be terrific for the end consumer, especially low income consumers who will have more spending power as a result. why is that a bad thing? reporter: the consequences -- david: the consequences of slowing inflation is that you slow output. so the forecast is talking about

a rise in unemployment, and all of the research we have from around the world, a 1% rise in inflation hurts people. a 1% rise in unemployment is essentially what they are trying to generate, and that is 10 times worse for pain, five times worse for well-being. so it is not as if the alternative to pain from inflation is everything is wonderful. what you do is say we will take the pain from inflation away, help people who have bets on what will happen to interest rates, and make matters much worse. so we will generate a slowing of output, rising unemployment, and to make people understand it, the rise in on it limit slowing activity hurts people much more -- the rise in unemployment, slowing activity, hurts people much more. and they've cut benefit at the low end -- they've cut benefits at the low end. lisa: looking forward, is what

you are saying that basically at this point, the fed come of the bank of england, the ecb don't have the power to affect the inflation we are seeing in the impact it is going to have on growth? david: claudia some has -- claudia sahm has said this all along. the reality for central banks is we need to solve the problem of the virus. this is a covid driven world. there are supply chain problems. the central bank has open -- if the central bank has opened a new long beach port and solved the supply chain problems, that would be great. but this i supply driven situation. we need to get to grips with the covid pandemic, and for central banks to say we would love to get back to normal. we would love the covid virus to disappear. but to argue we are going to go back to normal and we can ignore it because we know what is coming next absolutely no sense.

the credibility of the mpc has been completely trashed over the last three months. it is clear they have no idea what they are doing. jonathan: you know that many people out there take completely a different view on this situation, and that is what a fascinating. david: but they have been wrong for the last decade, and they are wrong again. jonathan: they thing this is a different moment to the one we were in 10 years ago. why don't you agree? david: well, i do think it is a different moment. it absolutely is a different moment. but it is comparable. in both situations, everything that happened from 1945 two 2007 was irrelevant. the ability to forecast what you would do based upon those situations, what we have learned is that you could not forecast that. you had to look back probably at the 1930's, and maybe what we do in this pandemic, someone wrote in "the washington post" said look back at 1918.

these things are not over. there are economic consequences from the pandemic in 1920 just like there are now. and they are behaving as if they have prior data they can forecast on and they know what is coming, as if they know what long run changes in behavior there will be, and it doesn't. this is a world of great uncertainty, and you have perceived forward say you know what is coming at your peril. that is what we learned in 2008, 2009, 2010. i am not saying i know the answer. i am just saying that those who do say they know the answer simply do not. jonathan: thank you very much. for the first time in 17 years, back interest rate increases for the bank of england. the governor on fred newell street raising interest rates -- on fred needle street -- on threadneedle street raising interest rates 25 basis points. the forecast for the bank of

england now looks like this. inflation peeking out around 7.25% in april. it had been expected to peak at about 6%, so inflation higher-than-expected. that is clearly spooked some people on the monetary policy setting committee over at the bank of england. growth set to slow. we talked about a 5% handle. we are now staring down the barrel at 3%. this is where things really start to get tricky. pick your poison. which one is it right now if you are a central banker? tom: governor bailey says omicron impact likely limited and short-lived. can the united kingdom open up as new zealand is talking about opening up? how open is britain right now? jonathan: they are ready to go. they are moving on quickly. clearly, the governor is as well. there will be complains about guidance today. why were people surprised by this? why didn't we get a speech from catherine mann talking about maybe doing 50 basis points? from the communication we have

had from this bank of england over the last several months, it is clear to them that this is a feature, not a bug. they don't want to hold your hand anymore. i have been saying that repeatedly. there is no other conclusion when you get four people on a community -- on a committee. tom: let's color for our audience in america who this guy is. i had the honor of sitting with governor bailey just before he was selected at our desk in london. who is mr. bailey? jonathan: many people remember him as the chief of the financial conduct authority. for a lot of people in the u.k., they wanted to move on from the superstar central bank governor that was governor carney and his get back down to basics. you might be surprised by that. you might be upset by it. but ultimately, you've got to do with what we've got, and what we've got is a central bank governor that does not want to give you a warm hug until you every thing is going to be ok, and this is what i am going to do tomorrow. he wants to turn around and get it done, and it has clearly taken some by surprise.

by the way, that has been repeated repeatedly in the u.s. it comes to the u.s. central bank. there is no defined path this time around. the central bank governors and presidents and chiefs and chairs are going to have to do things differently. they are going to have to be much more nimble. in the short term, may be in the medium-term, too, that is where things get messy. lisa: and the longer that inflation runs at these types of rates, the more it may crimp demand, the war and make room consumer spending as they are trying to accelerate and lengthen the cycle, not necessarily curtail it. it is such a confusing moment on all sides of the atlantic. jonathan: we are down by more than 2% on the nasdaq. facebook has a very large way to go on the nasdaq 1 -- a very large weight on the nasdaq 100. that is weighing on the nasdaq. on the s&p, down about 1%. let's take a sneak peek at what is helping -- what is happening elsewhere. a lift at the front end on twos. in the u.k., up a whole lot

more. switch up the board again and let's finish on this just briefly. that's have a look at what is happening with euro sterling, 83 pence. euro sterling -0.3%. that is a stronger pound. it is over to president lagarde in about 10 minutes. tom: you wonder if you will actually comment directly on what the bank of england did. that will be interesting. jonathan: the ecb decision in 10 minutes, and then onto a news conference 45 minutes after that. let's get to kailey leinz. kailey: what was a $900 billion company as of yesterday is more like a $700 billion company come the opening bell in about two hours. meta-platform -- meta platforms cratering, down 22%. facebook user growth staggering for the first time ever. taking a hit from those apple rule changes.

really, social media stocks across the board. snap reports after the bell today, twitter next week. they are down 15.4% and 7.2% respectively in premarket trading. users and subscribers is an issue for spotify. it is no longer just about that joe rogan drama. it's guidance really disappointing, down 10% after its report. qualcomm also on the back foot. it did beat on the top and bottom line. chip sales to smartphone makers are doing well, but it did not do as well in other areas cars or the internet of things. of course, it all tees up towards amazon after the bell today. sentiment not great going into that print. that stock is down about 3.6% in early hours. tom: of course, part of that advertising these particular result we saw a few days ago. this is "surveillance" this

morning. we are thrilled to give you voices that are expert on the culture of central banks, the political challenges of the continent of europe. we welcome holger schmieding, chief economist at berenberg. a perfect time to speak to him. each of these banks is culturally different. for our american audience, explain the political terrain that christine lagarde has to traipse from finland, from sweden, from the continent central country's down to the germanic fear of rising inflation. holger: yes indeed, the eurozone is different. it is separate nations that share a currency, that makes for a different political mix. there are some that usually prefer though interest rates. there are some that usually prefer high interest rates. there are some at the germans which historically are very afraid of inflation.

there are others that the that a little bit of extra inflation would not be bad. we have similar debates in other central banks, but the different angle in the euro zone is that this is a collection of individual nations, so this is not a debate within one nation. it comes with one advantage for the european central bank because the european central bank does not face one parliament, one finance minister, but has 19 finance ministers. it means the central bank does not have to listen to any individual finance minister and individual government that much. it just has to feel around how the overall political mood is as a backdrop. tom: when you sum your work with mickey leavy in the united states, how far behind is the ecb? holger: the ecb is not yet behind the curve, but is at a risk of falling behind the curve

if they stick to their previous guidance, namely that rate hike this year is very unlikely. inflation in the euro zone's high, but so far it is driven only by the supply factors, not yet by excess demand. it is not yet driven by excess wage pressures, factors which are there in the u.s. but beyond the omicron wave, the outlook for growth is strong, so demand will play an increasing role in the inflation outlook, and the ecb should see to it that it does not start to follow the fed in falling behind the curve. lisa: there's a school of thought that they should not raise rates to slow the economy because it will naturally flow, but they should raise rates to prolong the cycle, that otherwise the slowdown will be much sharper as consumer spending gets hit by inflation or predators how much do you buy

-- by inflation interpreters. how much do you buy the story that inflation could give headway to the central banks? holger: what will happen is that if you raise rates, you will have the dampening impact on consumer spending. if the economy is less hot, then you have is of a boom bust links of the cycle. so central bank early reactions can help prevent the boom, which will then have to be followed by even worse rate hikes and the bust. so once again, it does make sense to smooth the cycle by leaning early against what otherwise would be excessive demand. lisa: how much is the foreign-exchange component something that the ecb has to address? that the longer they wait, the more the euro will depreciate,

and this will increase the inflationary pressures as other regions hike? how much does this have to come into their calculus? holger: of course, this comes into their calculus, but the major thing is simply at the moment, what happens to energy prices in the situation around russia's president putin, the omicron wave of infections still, the supply shortages, and all of these factors are probably on their own more important than the exchange rate. the exchange rate plays a role, but it is not the decisive factor in the ecb's discussion. tom: there are some, particularly the cautious, who say there are indications of inflation ebbing, inflation rolling over maybe just at the first or second derivative. what do you see in europe? holger: if it weren't for the spike in natural gas prices and the recent surge in oil prices,

inflation would probably be rolling over, but if you start with inflation 5% in the euro zone, 7% in the u.s., it is not enough to have it grow over. the question is, does it settle back at 2% or a higher level? just rolling over does not suffice to say central banks could stay on hold. you would have to make an argument that inflation moves forward too much, that it is below the 2% target. if the rate hikes are implement it, and with all do respect to your previous guests, i did not hear his point convincingly enough for me. jonathan: we should have put you want to panel. holger: that would be interesting indeed. [laughter] jonathan: i think it would be very interesting. holger schmieding of berenberg. governor bailey saying there's much uncertainty on the outlook. it would be a mistake to assume rates are on the inevitable long

march higher. we know this is not a standard demand driven rise in bank rates. the economy is not exactly roaring away, is it? tom: i am going to say this again, the overlay here, including the fiscal pop in the united states, which i would suggest is discrete in the united states, none of this is in the textbooks. and these are smart people, including holger schmieding. they are making it up as they go. they are all making it up as they go. jonathan: for bloomberg terminal subscribers, if you want to follow the q&a part of the conversation in the news conference, you can do that on the bloomberg terminal. we are waiting now, 30 seconds away from an ecb decision out of frankfurt, germany. jonathan: the pressure is on -- lisa: the pressure is on, especially as you see the divergence between the ecb, the fed, the doves hanging out and saying they don't need to act, they can remain at zero or below

and remain incredibly accommodative with their policies. i feel at the political pressure is getting harder to stomach. jonathan: as it goes red on the bloomberg terminal, a mistake to assume that bank of england rates are on the inevitable march higher. this is why it is so much harder to gauge the tightening cycle from any central bank at the moment. whether it is the bank of england or federal reserve, they will need to be and want to be incredible he flexible. that is where you get these surprises. no surprise from the ecb right now. rates unchanged at -50 basis points. the main refinancing rate at 0%. they can from those december decisions out of the ecb this morning. lisa: we never expected to see a rate hike. the expedition is that it is going to be the press conference at 8:30 with christine lagarde that will be the most

interesting. how will she address forward guidance? what will her parameters of risk be? how will she address the fact the bank of england is saying they are concerned that without tightening policy, they will not get back down to that inflation rates that they are looking for? how can she then can out and say we are not worried? jonathan: inflation may moderately exceed the goal for a transitory period. tom: there it is, that he word -- the t word. this is a separation here. in america, if you are going why are we doing this, this is truly original. must see 2% inflation well before the end of forecast horizon. i am thinking 2030. what do you think? jonathan: i am thinking may be the same, given their inflation forecasts. the cpi, 1.80% in 2023. i'm trying to follow to news

conferences at the moment. i got governor bailey on one screen and the ecb decision on the other. manus cranny can dedicate himself to one. let's talk about it. what is happening in frankfurt, germany? manus: we are going to hear what her rhetoric is, because madame lagarde is to push back against the two rate hikes already priced into this market. two-year paper is back 15 basis points, so traders here are pushing to the point where they see a rate hike in july. i think what is interesting is when it comes to the asset purchase line, even though you seem to be slowly seeping through this, is that the purchases is going to be $40 billion in the second quarter. so as the pandemic rolls off, asset purchase program is the underbelly. but she must convey patients and

not panic. that is the objective today. it may be accelerated inflation, but enduring. jonathan: can they sit out the rate hiking cycle at the federal reserve, at the bank of england? why is it different when the bank of england is making a move, making another move? what is different for them? manus: our inflation is not like your inflation. that is pretty much what everybody will come on your show and say. i am being slightly tongue-in-cheek. unemployment here is low, but the wage negotiation here in the heart of europe with the unions around me is very different. it is not like america. the power of the wage is very different. it is a structurally different employment market, and that is what maybe gives them a bit of room to breathe. i would say they are getting more and more boxed in. i think in the autumn she said

she was not for tapering. this woman is most likely to indicate that she is ready for tightening. jonathan: i think this time around might be more interesting. don't you? lisa: it is not going to be a snooze fest. jonathan: alberto gallo joins us, the head of global credit strategies and algebris. get me up to speed on what you're looking at this morning. alberto: does a lot of questions for madame lagarde. first is if we have reached the right inflation level to be ready for a lift off. the ecb has been trying to dig their heels into a dovish policy. we know that europe needs low yields because of the recovery fund and government spending, and trying to lift economies from still high-end limit. we also know that inflation in

europe is different because there's a lot more transitory energy components, and wages are still stagnant. nevertheless, there's over one hike priced in for this year. madame lagarde will have to be really credible in pushing back, and we think markets will fight it. there are transitory components in inflation, but the headline number over 5%, and keeping rates is probably still having too much weight on the accelerator. if the ecb won't hike this year, they will have to do a lot more later on. the risk is when you brake very quickly, the passenger goes out the windshield. we will probably have a lot of dovish talk, but eventually they will have to do more next year. tom: you are expert at gaining the x access to make a

profit. -- the x axis. governor bailey talks about the long march. are we rushing things here? do you think all of this is going to take longer than anyone can perceive? alberto: inflation we think is persistent. we are still very sticky in the u.s. and the u.k. the u.k. also has bottlenecks that are structural because of brexit. we have been talking about persistent inflation. now the question is, how people's expectations on rate hikes gone too far? is there a competition for 5, 6, 7 fed hikes? how much can the economy really take? we think a frontloaded hike cycle is what we are going to see. so more hikes in 2022. that is the playbook for the bank of england.

probably not a very high terminal rate because economies still have a lot of leverage. but the ecb is going the other way around. they are delaying because wages are stagnant, unemployment is very high, and they're going to have to do more next year. so with the ecb, still probably know hike this year, even of the market prices one. but it means probably two or more next year. lisa: how do you position for this? how do you take advantage of the necessary ensuing volatility that we see? alberto: unfortunately in this environment, we are in a hawkish cycle in a bear market for risk assets, so if you are holding a long-running portfolio, especially if you are in bonds, you have two outcomes. yields price because gains get eroded by inflation, so it is a very challenging market for

being long bonds. particularly the reopening sectors in the economy. then we have a number of shorts because when the fed hikes, there's going to be accidents. countries with weaker fundamentals, south africa, very low spreads. we have a lot of protection for a hiking cycle along the way, and we think that is the dollar strengthens, these countries will have issues. also, weaker credits across the space, so it's a lot more nibble , lower growth and lower beta portfolios for the coming quarters with a lot more liquidity. jonathan: thank you, sir. alberto gallo with a pretty dark call on risk assets. two pieces of controversy in the last 30 minutes for central banks.

governor bailey saying this, the living cost crisis would be worse without the rate hike. that coming from governor bailey. the living cost crisis would be worse without the rate hike. that is his argument. the other piece of controversy as well this morning is that the bank of england clearly does not think this is transitory. the federal reserve is not using the t word anymore. the ecb is. they are sticking with it. that is going to be the epicenter of the conversation with president lagarde at 8:30 eastern. tom: this is original economics. everyone is thinking as hard as they can. all you can do is go back to the data. i'm going to make this clear, it is ever so slight, but the five-year view out five years shows and ebbing of the belief in inflation. as david blanchflower mentioned, the big bet for those saying, down is that goods inflation will come in. it is different in europe, and

england, and america, but that is the core theme, that goods inflation will come back to some form of normality. jonathan: this statement came through from president joe biden. "last night at my direction, u.s. military forces in northwest syria successfully undertook a counterterrorism operation to protect the american people and our allies and make the world a safer place. thanks to the skill and bravery of our armed forces, we have taken off the battlefield the leader of isis. all americans have returned safely. i will deliver a remark to the american people leader this morning. may god protect our troops." tom: the second leader of isis, the islamic state. what i would suggest is all of this has a massive recency. this guy was only really identified less than two years ago, so i would suggest to go after him in syria has happened rather quickly. jonathan: it is tough to get up to speed with what is happening this morning. we need to talk about facebook,

getting hammered in the premarket. we are down by more than 20%. on the s&p 500, down 0.5%. on the nasdaq 100, down by 2%. mike wilson of morgan stanley joins us next. on tv and radio, this is bloomberg. ♪

as a business owner, your bottom line is always top of mind. so start saving by switching to the mobile service designed for small business: comcast business mobile. flexible data plans mean you can get unlimited data or pay by the gig. all on the most reliable nationwide network. with no line activation fees or term contracts... saving you up to $500 a year. and it's only available to comcast business internet customers. so boost your bottom line by switching today. comcast business. powering possibilities.™

>> it is a dance between the fed and markets. >> the good news is markets have been aggressively repressing future monetary policy. >> this is one of those moments where there is so much uncertainty. >> the fed wants to get into role of the narrative. >> it is a dynamic economy. these are not linear decisions. >> this is "bloomberg surveillance," with tom keene, jonathan ferro, and lisa abramowicz. tom: an historic day on i can --