>> this higher inflation is undermining consumer confidence and consumption. >> the fed has to keep making these basis points until a demand slowdown. >> i would be amazed if the fed is able to go 50-50 in a straight line without any pushback from markets. >> maybe they can pause and let high prices naturally bring down demand.

>> it is reasonable to argue right now that late -- that rate cuts are on the table. >> this is bloomberg: surveillance with tom keene. jonathan: good, alongside tom keene and lisa abramowicz, i'm jonathan ferro, futures positive .5% on the ecb. the ecb coming 45 minutes away, onto uscp tomorrow morning. tom: the press conference will not be boring, very interesting and her statement in the beginning, and for nuance, what is the nuance you will listen for? jonathan:, the debate over 25 or 50. poke dutch pushing hard for move today, bigger move in the future, the president wants to maintain optionality in this weather moving so slowly. today is about laying the

groundwork for the next meeting, unwinding q. week, finishing, doing a couple times and waiting to see. you know better than most that you can be overtaken by events and the ecb has been overtaken by the events of inflation of the last 12 months. tom: i want to emphasize this is different than a fed discussion. i'm going to go back to the core monthly payments people make. the utility bill structure of greater europe is front and center for christine lagarde. jonathan:, skyhigh and the u.k. example outside of the euro zone, where people's energy bills have been climbing, surging over the last few months. we all have a struggle with that and the ecb has to struggle with this. inflation numbers probably get taken up today in the forecast. growth numbers probably get taken down in the forecast. how do you set policy for that? lisa: you hike into weakness. we have been talking about this as a theme, the ecb facing the

same reality. my issue is what happens if they come out more dovish that people are expecting? what if they confirm only a 25 basis point rate hike at the july meeting and the expectations, they're not going to go to 50 basis points, we see a sigh of relief or longer and yields in the region climbing more dramatically because inflation will get away from them? jonathan:, and without getting too technical, how do they manage the periphery? what is the balance sheet strategy to make sure yields search as they start the rate hike cycle? lisa: and what is the political revocation of specifying, if they're going to support the italian bond market, rest of the dutch peripheral market when they want to support weaker members economically at the same time that they have to move away from low rates? tom: brent crude entered a peak, 124 40. we went back and forth last

night, i do not do the math on number of leaders to a gallon converted to dollars -- liters to a gallon converted dollars. but it is in the $10 area, lodging -- nudging toward $11 a gallon. for petrol. jonathan:, very impressed, can't wait to join this conversation. look at gas prices in america, euro bemoaning, it is so much higher in europe, budget is a budget. the pain is not relative. if your budgeting that gas will be a certain price per gallon every time he filled the tank and then it changes on you, you are not saying but it is still lower than what they pay the u.k.. it is not a relative story. it is what you are paying month by month, it is what you budget for, how you drive it how it changes on you. that is the story. tom: dovetail that with the

yesterday or day before, i disagree with lisa or she disagree with me, revolving credit is a moonshot in america because of that. people are running out of money on a weekly, monthly basis. jonathan: final word? lisa: it's the reality, it is a budget and it is getting cramps, people are going to spend less on other things. jonathan:, half of 1% also, 2%, euro-dollar unchanged, about 41 minutes away from the ecb decision. lisa: exactly, the rate decision at 8:30, see lagarde giving color to the decision to raise rates as soon as july, 8:30 a.m. we get u.s. initial jobless claims, do we see weakness in the labor market? rick rieder speaking to you last week said the report we saw on friday could be the last solid

one in a wild, we could see a negative print to the next couple of months. to be see evidence of layoffs picking up? at 8:00 p.m. we have the primetime hearings in congress, the expectation they will be a bombshell guests, otherwise why do prime time? jonathan: very true. a whole host of things to look forward to, let's get to our guest, we spoke to sebastian page and he said after a selloff of this magnitude we would only buy stocks but the sum we are not. what are you doing? >> where mutual and i think you could see a bear market rally. we have to look when i things going to change, but once you see some of the economic data, earning status start to roll over, we think you will see a challenging period for equity markets, where it retests the lows we have seen the past month or so and goes beyond.

jonathan:, people have been conditioned by the last couple of years, the last reference point for this spring of 2020. we started to rally and we had this conversation, how do you differentiate or distinguish between a bear market rally or something more durable? what have we learned, a lot of people are thinking i want to get in because i was told this last time, it was a bear market rally and this ripped. weiss is so different? >> the circumstances different than anything we have seen over the last decade. investors have become very accustomed to good returns, low volatility and being supported by the fed. with inflation at this level, i pushback about the idea of the fed pushed any time over the next 12 months or so. in that environment, you have to look at the fundamentals, you have to look that energy bills are weighing on households, u.s., wherever you look at it and earnings will start to look at it.

tom: i think london school of economics, they study urban of yell, they say does inflation follow rates or do rates follow inflation? >> the big question. they should work with a six to 24 months lag. there will be other pressures working through. the economic slowdown in progress because inflation will be pushing down on these consumers. and we also think about supply chains, this is complicated compared to previous, you had this additional post-covid supply chain and the russia, ukraine crisis. lisa: if you do see that fed put's on the table, what is the argument for a weaker dollar? >> it is a good question. at the beginning of the year we were looking at the valuations for the dollar and it was flashing red. but valuations does not a silly mean things are going to change. need a catalyst. and because we have seen market

expectations for the fed hikes hit a peak and at the same time you're seeing expectations for the ecb and other central banks starting to push up, will hit a concentra -- a crescendo at some point, but there is pressure on the u.s. dollar. lisa: but we are not seeing it out even as we expect a hawkish message today, the likelihood of 25 basis points even more in july, what more could they say to be a catalyst to send the euro stronger? seema: they need confirmation from lagarde. she's indicated this is on occasional meetings, rather than what the market is pricing in. so i think we need to see additional downward pressure. even if we were to see lagarde moving in that basis point hike, these to be following, i don't think it goes long as we have a more negative view for the european economy. i don't think they can move at

these rate hikes later on. jonathan: the forecast could be dreadful, seema, looking at the current forecast for growth and 22, 3 point 7%, inflation 5.1. think about where inflation is right now, how much that forecast might have to change and with gdp 3.7%, that sounds optimistic given what that economy is facing. lisa: how do they parse out oil and gas for the rest of the components? how do they parse out how durable this inflationary move is? it is changing from people expecting a wage price spiral or something more pernicious and longer-lasting to perhaps a big question mark. is it the same in europe, do they see the transitory story working in the background? jonathan:, lurking. you need to see the facial

expressions when she makes these points. want to finish on this one data point. if you are going to compare the rate hiking cycle in europe to the united states, fink of the labor market, too. unemployment in europe, the forecast for the ecb, 7.3% this year, 7.3% for next year, 7% in 24. a three handle in america. tom: even with structural differences, that is a large number. we are underplaying the distinction of the bundesbank with the proxy for the central bank, another guy. we have depersonalized these political decisions that matter lagarde has to confront, their tangible. jonathan:, that is a good thing. tom: i think it is europe, the tension of core europe with prosperous europe and are struggling europe is tangible.

jonathan: and there has been a groupthink, the diverse views on the european economy often criticized. i think i agree. futures up half -- .5%, ramone, julian emanuel in the next hour of evercore, base case for 400, a bear case of 2900. this is bloomberg.. ritika: keeping you up-to-date with news around the world, the european central bank expected to from of its plans to exit negative interest rates, likely to end asset purchases in the coming weeks and they will probably send another signal the ecb will join the fed and others in raising interest rates next month to fight inflation. the house has passed a package of gun legislation that includes raising the minimum age to buy many some out about rifles from

18 to 21 but the move is mostly symbolic, it will often be set by whatever negotiations go on in the senate. taking the investigation into prime time, they hearing will include testimony from a police officer injured on generally six and a documentary film maker who capture the event. the republicans have planned counter programming. raising the payout, for percentages -- a full percentage point above walmart yield, after target lowered its profit outlooks for the second time in less than a month. in china, the securities regulator says it is not doing work on the initial offering, but it does support eligible companies overseas. bloomberg reported regulators have established a team to reassess the fintech giant share sell plans, what would have been

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>> we are the strongest economy and that has allowed us to stay on top of and a little ahead of what is happening around the world. inflation is the bane of our existence. inflation is mostly in food and gasoline. at the pump.

jonathan:, and herring his approval rating. the president on jimmy kimmel live in the united states yesterday evening. futures positive .5% on the s&p, the nasdaq 100 .5% also. the yields at 7.8 percent, but it is not just energy and food. this is broad-based. tom: it is broad-based and what is important is, maybe you look at apparel tomorrow to see the linkage, target and walmart as well, and i'm going to go back to david rosenberg 101, who literally became famous parsing inflation at merrill lynch years ago. it matters to divided into 82 different subgroups. jonathan: it starts now, but minutes time, and uscp out tomorrow morning. tom: there will be core

inflation analysis. nobody in washington cares about core analysis of inflation. they don't care about cleveland, but they care about the headline number and it is grim. who's a groomer for, republicans or democrats? >> politically it hurts democrats much more. republicans are campaigning on inflation. it is an issue around the country and if you are talking about who it effects in terms of voters, you look at california gas prices, a number of democrats, it is not just rallying republican opposition to the president, it could dampen democratic enthusiasm because it is so widespread around the country. it is a huge problem for democrats, the focus of the midterms right now for republicans and a major factor why people expect republicans to win at least one of two chambers. tom: i have a box in the attic

full of my regular ties before bowties. next to it is a box of my political memorabilia including makes and jfk buttons. it also has a whip inflation now button from gerald ford. that went down in flames. is there a risk that biden comes up with a program that goes down in flames? >> the bigger risk would probably be him being seen as not having much of a program. he can make the case that it is concentrated in certain areas, you can make the case that it is a natural progression from the pandemic and the reopening and difficult reopening, but he does not have a very clear answer to what exactly he can do. it is hard for him to campaign on the comparative lowering of the deficit this year compared to last year.

the biggest risk is he still has a legislative agenda he wants congress to work on. they seem to be working on things like prescription drug prices, there is a conversation going on, but it is the kind that could stall and end up with nothing more than he has accomplished. so his risk is less a coherent response that failed and more the idea that there just is not that much of a response. lisa: tom, do you have an attic? tom: we have an ancient attic. i've got all of my old textbooks. lisa: lots of lv boxes durham ever the good old days. jonathan is losing it. if you wonder how much we are expecting the focus in washington to turn to july 29 with exxon and a number of big oils to report second-quarter earnings and perhaps we will hear more about a windfall tax or some sort of problem with the prophets they are posting.

are we expecting anything on that front from washington other than hearings? >> i think it is safe to expect rhetoric and hearings. some of the legislative response to that kind of thing has stalled. there was a gas price gouging bill that got caught up in the senate. the senate being a 50-50 split makes it tough to even get things out of committee and onto the floor, so it is effectively sold. the legislative outlook, and the outlook for anything really substantive on the democrats hoping to hold energy companies accountable, to cut down on the prophets, that is tough and it is not the highest priority on the legislative agenda and capitol hill. that is more of a rhetorical issue. jonathan:, fitzpatrick and d.c.. 82% is the meeting estimate for cpi.

8.2% is the headline number, each about energy and food, 5.9% down from 6.2%, all survey stuff. what wall street is going to focus on, month over month figures. core 0.5%, 0.5%, i would argue, many would, still too high. lisa: it is still too high and when people talk about inflation coming down there talking about 4% or 5% by the end of the year and possibly not much lower by the end of the next year. what is the breaking point in terms of when that becomes sticky? i don't have a clear answer. jonathan: what is the threshold for the fed to back away? for my position, listening to these guests, give me your input, i would love your perspective. it still feels like the consensus as the fed backs away in september or shortly after. that seems to be the consensus position. i don't understand the threshold that allows the federal reserve to make that decision.

lisa: the consensus is a quiet, unspoken transitory. that there will be this rollover effect that will bring inflation down naturally and help the fed back away and give them more avail judgment reason to not go as far and fast as bill dudley is expecting. whether we get that supply overdue or anything that could bring some of the prices down naturally remains to be seen. clarks summit people believe the story won't persist, it can carry on. >> that is what they say and then you look at hydrocarbons and they said at 123, i forget where we are, brent crude -- brent crude 124, rounded up, to be go to 134, which no one understands, or do we go back down to 114, that is a key emotion. i want to emphasize, this has to do with when we invented surveillance. the public is in the here and now. that is going to be the inflation report tomorrow that

president biden and everyone else has to deal with. the strength is in the expected. we are always looking out to the expected and it is two different worlds. the global wall street world and the fill it up at the pump and fargo world. jonathan: to be clear, when we invented surveillance, were you wearing ties? tom: no. the lesson i wore a tie on the show at bloomberg was with the set designer for matt bevin. -- madmen. i wore a skinny tide just for a moment. jonathan: and your thoughts on that? tom: they said you are no jon hamm.

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if you can carve out a little bit of time in 45 minutes we will check on when julian emanuel of evercore. he has made a move of 4300 on the s&p yesterday, 4150. it is bare case is 2900 on the s&p.

equity futures positive at 1%. ecb decision in 15 minutes time. euro-dollar unchanged going into the ecb. 1.0350 was in the middle of may. the ecb faces some contradictory goals. they don't want the euro to get to week. at the same time, they don't want spread to get to wide. we often talk about goldilocks, not too hot, not too cold. i am not sure what is just right in europe right now. lisa: they have to thread a needle in a scenario that is a basic hurricane. they are dealing with basic variables and getting it right

david does that mean a weaker euro because that will slow growth or a stronger euro? i have not gotten an answer. jonathann: the bank of england is living this right now. they have had to raise their inflation forecast. when we see a repeat in one hours time when we hear from president lagarde? tom: the u.k. view from oecd was dropping. the spread market to me is more important in europe because it is so politically not homogenous. we are not talking enough about the politics of lagarde. jonathan: the difference between the federal reserve and europe, you are looking at different markets. chairman powell doesn't have to juggle the italian debt market. spreads have bought into outcome inside 100 basis points.

lisa: they are clearly aware of this. christine lagarde said she was not there to close the gap and then she said that she was there to close the gap. how much can they target a program? there has to be a more nuanced approach. jonathan: what do they do with the balance sheet? let's find out later, the decision 13 minutes away. jonathan: let's say good morning to romaine. >> tesla shares are one of the more notable gainers of the day, up 3.5% on the back of that data out of china showing the shanghai factory pumped out 30,000 cars in the most recent month. that was a huge draw down from what this factory was used to putting out in the 60 and the 70,000 range. a lot of people seem to be

applauding this. we will see if this trend continues into june and july and beyond. earlier we had seen optimism for chinese tech names largely on the back of various reports that china has. to be easing restrictions on those tech companies, allowing video games. the report today was that it would allow the ant group to go forward with that ipo which was famously scattered years ago. regulators in china put out a statement in response saying they are not considering that, although they are open to some degree of re-listings for these companies. alibaba had been higher in the premarket, now down about 1.5% here in the u.s. billy billy down 10% after rallying yesterday by a significant margin. there is some optimism in the u.s. caterpillar setting up for what

could be a seventh straight day of gains, higher by .9%. the retail sector still under pressure. five below down 7%. they say comp sales will have a negative sign in front of it. end of an era for ticker symbol fb. meta officially changing over to meta. tom: look for the close this afternoon as romaine will dive deeper into bilibili. sharon bell has an economics parchment which is different. you get to go look at one of the great treasures of the united kingdom which is the roman bath of the first century. there was inflation in the time of the romans. there was inflation in the 17th century when they made baths.

there is inflation now. what is different about this inflation for equity investors? there is something unique going on. >> that is an incredibly long term perspective. i think inflation in the 1970's was pretty bad. very bad for god investors. for equity investors, it was pretty bad, too. the only assets that the well were commodities and gold. i do think commodity shares, material companies, as china is reopening, the energy stock stands to gain most. tom: can we see corporations adapt? you have a quality cash flow, statement from goldman sachs. can those corporations adapt to

a sustained 5% inflation? >> quality companies, they have higher margins than the average company, which means as costs go up,, these companies are likely to go into margin. most companies were able to pass on a lot of these costs. that is where inflation is. cpi going up because companies are passing on the cost. there is a bit of a barbell. there are quality brands, very high margins, etc., and then there are commodity companies that are price takers but they make pretty good profits in this environment. lisa: why is the story not only about commodities but that

rising rates will be positive for banks that have gotten hit by negative rates? sharon: ultimately they will be positive for banks. they could not make any margins and that kind of environment. now we are going to in environment was slightly higher interest rates potentially. banks are also in a better position because of capital levels but there are some vulnerabilities. talking about sovereign problems, that levels -- debt levels. they have not come down again. core inflation may be a little bit helpful to that narrative but it is still a worry. those types of issues are still issues. lisa: which is perhaps why the

banking sector is not a monolith, cannot view it as such. how much are you investing, actually trying to double down on the european bank story, given it has been the pain trade for the past decade? sharon: lots of people see banks [indiscernible] i do think the banks collapsed around the ukraine more time. some of them are specifically exposed to russia. they have bounced back since then, they have more to go. i actually still quite like the banks in europe. material and energies companies, they have been valued areas. they still have further to go. jonathan: sharon bell, thank you. we are six minutes away from that decision from the ecb.

45 minutes after that we hear from president lagarde. lisa: what are you looking for more, the rate decision or the guidance, christine lagarde or how she messages? jonathan: most people expect today and announced of the end of qe, a month after that you raise interest rates 25 basis points. what i want to understand is the balance sheet. how do they sure things don't go around in the italian debt market? could the forecast be as messy as what we saw from the u.k., the bank of england a month ago? lisa: how much flexibility do they build into the statement talking about the end of the purchases, to talk about what they could reignite in terms of buying. how much are they going to signal that what's ability? how much of it is a signal that they will be more aggressive with rate hikes because they are trying to get ahead of it? jonathan: each central bank has

their own style. christine lagarde, some of the work she had been using, gradual ism, optionality. tom: i would suggest all of the attorneys in chicago, they will lead with optionality. she needs that given the fractious nature. what i want to know is why don't we have a countdown clock? folks on radio and television, we welcome you, too. the ecb decides. that is the name of the show now. jonathan: after the decision comes out? if people had any choice on th at. let me get the fan mail, bramo is always the highlight. how does she put up with you two? she leave the kids behind every

morning to babysit you two? futures positive half of 1% on the s&p. yields unchanged on the 10 year. the ecb is up next. euro-dollar positive, .1%. >> keeping you up-to-date with news from around the world. the central bank's program for its first interest rate increase in 11 years. policymakers will announce an end to asset purchases. officials are trying to bring down record inflation while avoiding more damage to an economy hurt by the war in ukraine. president biden called inflation the bane of the u.s.. he said that high fuel and gas prices could be offset by legislation, lori the cost of scripture drugs and childcare.

authorities and shanghai are locking down part of the city again. they will conduct mass testing on saturday. more than 2.6 million people would be involved. [indiscernible] the proposal puts the value at $3.6 billion of the business which runs more than 2200 roots drug stores across the u.k. tesla staged a remarkable comeback in terms of production in china. the vehicle maker tripled its output from a despite only recently getting it shanghai factory back up to speed. 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.

tom: jonathan: we are one minute away from an ecb rate decision. we look at their response from maria tadeo. futures up positive 1.5%.

at italian yields essentially unchanged, 3.35. that is one to watch along with the euro. 10747. lisa: why aren't italian bond yields higher? does this indicate faith to do something to fortify and create ceiling on yields? this idea that they will come out with a program or is this the idea that they will not move as much as people think? jonathan: isn't that the language, this idea that we will have a gradualism, optionality. i have been really surprised by how quickly things have moved, how quickly people have gone on board with this idea. lisa: right now we are looking into your german yields going back to 2011 as people bring for their expectations. what's been shocking is the inflation coming about expectations.

that is why people have responded by pulling forward what they think the ecb will do. jonathan: here comes the decision from the european central bank. rates first, guidance on qe. rates unchanged. the marginal lending facility at 25 basis points. unchanged on the depot rate, -50 basis points. here comes the forecast, raising the inflation forecast, predicting 2.1% in 2024. rates unchanged, raising their baseline inflation projection significantly. reinvestments are flexible across time, assets, and countries. i know that one of the line you were looking for as well. they expect to raise interest rates again in september. that is an extra line we have seen come across. i will dig into the statement. this was set up for a move here on the asset purchase program, then next on rates.

also on the asset purchase program to include that looks ability. we had a lift to the inflation forecast, dropped to the growth forecast, 2.8% from 3.7. 2.8, some would say that is optimistic. lisa: especially given how much inflation has been going up. to me this confirms what has been happening all morning. they are expecting it to move, monitor the inflation and have that be the primary concern. at the same time, remaining flexible to other areas of the european region in terms of staving off any kind of runaway yield, selloff and bond prices. that speaks directly to the italian market. jonathan: annual inflation at 6.8% in 2022. they see you dropping to 3.5 in 2023. the energy star is not promising. growth story is not promising either.

2.1% in 23. we will get into the policy and forecast. a lift to the inflation forecast as expected, severe cut to the growth forecast. hiking rates by 25 basis points in july, a move in september. a lot of what we are seeing confirming what was in that blog from christine lagarde. the flexibility and the asset purchase program, an interesting element of the program. tom: first of all, off of oecd yesterday, these are more optimistic numbers. there is a lot grimmer tone. b, you are doing this in the middle of a more that is maybe tangential to ecb. there is a major war going on within the greater european territory. you see it with a notch to weaker euro.

i don't want to make much of it, but clearly the tone is weaker euro. jonathan: they go through the asset purchase program on rates. i'll read this out. in the event of renewed market fragmentation related to the pandemic, the pandemic and ready to purchase program, reinvestments can be injected possibly across time, asset classes, and jurisdictions at any time. even though you end qe through the asset purchase program, ultimately pep and the reinvestment of maturing bonds will be incredibly flexible. this kind of addresses the question people have been asking, how do they raise interest rates without damaging the italian bond market? you have an italian 10 year up a couple of basis points at 3.40. how do you do both at the same time? euro-dollar, a break of 1.07.

a couple contradictory things to think about. how do you make sure this bond market does not run away from you? lisa: how much control can they have with purchases, as we point to the jgb market, as they try to control yields. are we going to see a similar battle? we see that as marcus try to adjust the message. the ecb is trying to big and more flux ability for them to raise rates while controlling the curricular region. how much control to they have through these asset purchases? jonathan: something people may know have read before from an ecb decision. the outlook was not sufficient, did not meet the threshold for interest rates. here is the paragraph on interest rates. the governing council undertook a careful review -- as a result of this assessment. the governing council concluded those conditions have been

satisfied. it has been 10 years plus since the governing council concluded that those conditions have been satisfied. it is going to wind down qe. they are going to look to hike next year. tom: the trends are extraordinary. maria tadeo, what is the impact of those more conservative on these headlines? maria: one thing that you mentioned, the september hike beam going into this press conference, she will get hammered on this, whether the hike will be 50 basis points. when it come to the german central bank, it is also something that you hear from a number of central banks in the euro area, the ecb needs to be more aggressive. projections show the inflation print is a problem. you mentioned flexibility by jurisdiction, by country.

some would say that is a reference to italy. the challenge for christine lagarde, she needs to prove this is not just about italy. the european central bank is not here to set policy for individual countries. this has to be a bigger debate, not just focused on italy or paper. it is clear there is concern about the fiscal situation. that becomes a problem for italy. the remarkable irony of this all is we are here debating, and it was mario draghi, who is now the prime minister of italy, that will have to deal with this. jonathan: an extra couple of lines to bring to the audience. this line on september is really important on rates. the governing council expects to raise the key ecb interest rate in september. the calibration of this rate increase will depend on the updated median term inflation outlook.

if that insists or deteriorates a larger increment will be appropriate at the september meeting. i wonder if that line was included here to just alleviate some of the pressure coming from the hocks on the governing council? they just don't want 25 basis point likes, they want to go bigger. lisa: the recognition of that will only ignite the trading in the markets that have priced that in through the remainder of the year that there will be at least 150 basis point rate hike by ecb. shocking to think of that given they have just been in negative rate territory for at least a decade. how much fine do they have to do on the periphery if they go 50 basis points in one meeting? jonathan: rates unchanged at the ecb but not for long. they will maintain some sort of flux ability to address what they worry about which is called fragmentation, you can work out what that actually means in the european debt market.

they have had to cut the growth outlook, give us guidance on rates. 25 basis point move in july, again in september. you keep hiking after that but the words they keep leaning on are the words that president lagarde have been working on for a while, gradualism, optionality, flux ability. if you want to play a drinking game when this news conference starts, look out for those three words. tom: to me that headline is the single inflation adjustment. 6.8% inflation down to 3.5% next year, 2.1% in 2024. that is a good framework to bring in the international economist at wells fargo, nick bennenbroek, who is hugely qualified to speak on this. i know no one who has consistently applied fx strategy over his career like he has.

thrilled to have you with us in the studio. does madame lagarde have control over the situation? nick: i think she does. there's an economic control and political control because of all the policymakers on the ecb. that medium-term forecast at 2% says the ecb has an inflation problem but not severe as the united states or u.k. tom: we are going to go right through the 8:00 hour with mr. benbrook. we welcome you all on bloomberg television and radio, particularly in europe. jonathan: tell me what you think about this quote. pep reinvestment can be adjusted flexibly across time, asset classes, jurisdictions at any time. talk about what you think fragmentation means, what they are planning to do as they hike interest rates? nick: they have seen more

fragmentation than they would like. in germany, one percentage point up to two percentage points. this is about all that they can do with flex but reinvestment. it will be difficult for them to raise interest rates. some of the other option they talked about was restarting purchases. or even coming up with a new program to stabilize the markets. then you would be tightening monetary policy on the one hand, easing policy on the other. i think they will go with this flexible approach for as long as they can. that will be a delicate balance they will have to walk. jonathan: walking a delicate balance on the ecb when you have some loud hocks, and they are so loud. they don't want 25 basis point moves, they want bigger than that. there is a line in the statement in september that i would love your thoughts on. the calibration of this rate

increase will depend on the updated medium-term inflation outlook. if the median term inflation outlook persists or deteriorates , a larger increment will be appropriate at the september meeting. that scream to me that the ecb is trying to please the hocks and tell them that if this continues through the summer we will go 50. nick: certainly trying to allay the concerns of the hawks. i don't know if we are going to get 50 basis wins in september. it looks like we are going to get 25 in july. coming back to tom's question, does madame lagarde have control of the situation, she has managed to get consensus behind a 25 basis point move. looking at our own forecast, we expect 25 in july, 25 in september. if i was a voter, i would be going with gradualism at the. lisa: foreign-exchange does not know what to do with this. a trading range for the euro

versus the dollar. unclear whether this will be supportive or detract if it ends up slowing growth further with more rate hikes down the pike. do you think a more hawkish stance will be positive for the euro or negative? nick: if we were to get a more hawkish view than today, it would be positive for the euro. looking at the near-term, today, the question was for july. looks like we get 25. that is why i think the euro is selling off a bit today. really it will come down to do we see those high inflation prints, those hawkish comments? i would also say the federal reserve moving quicker, the u.s. has a larger inflation problem, so macro economic fundamentals, softer euro over time. lisa: doesn't matter that a lot of the inflation is driven from the energy market in europe?

really the ecb cannot do much about that by raising rates. nick: it matters a little bit. trying to you the economist's trick of using both hands. the eurozone doesn't have as severe an inflation problem when you look at their core inflation rate of 3.8%. a central bank and say the underlying trend is not so bad. i think there's a huge focus on headlining nation in eurozone as well above 8%. even if all of this inflation is being driven by energy, these oil prices will be at $120 a barrel or higher, so we will hit higher inflation. tom: i want to go back to your heritage. writer douglas had a new zealand blowing up 30 years ago. his leadership, new zealand

codified inflation targeting. right now inflation is essentially out of control. the response here is not a formula targeting, like what the bank of new zealand did. the issue here is the level of dovishness versus hawkish this. how dovish are the dovish central banks right now if they cannot affect new zealand-like targeting? nick: certainly, overall, there is still a lot of dovishness, although there is an evolution going on. when you look at the central banks this year worried about slower growth or higher inflation, coming down on the side of let's tackle inflation to raise interest rates. policy rates are still extremely low relative to the rates of inflation. at the end of the day it is not a 1980's pa vck