>> the fed will have no choice but to stay aggressive. >> we should be prepared for if that needs to hike more than the markets are dissipating. >> in the eurozone's case, we think it will dip into mild

recession. >> we don't seem to have those capitulation selloffs that typically marked the bottom of a market. >> i'm always nervous going into the summer. bad things happen to the market in the summer. >> this is bloomberg surveillance with tom keene, and lisa abramowicz. tom: jon ferro, lisa abramowicz, tom keene. we will bring you the decisions of christine lagarde and the ecb. jon ferro to the challenges trichet and mario draghi. now, lagarde with some tough decisions. jonathan: we are going to say something that we have not been able to say since trichet. the question people are asking, will it be 25 or 50? does that come with the anti-fragmentation? what do you do now that you have a draghi-less italy?

tom: they are making it up as they go this morning. jonathan: in a big way. and we are making it up as we go, as well. we will get a news conference in about 29 minutes time. in fact, 8:45. it tell in politics, draghi resigned, not great. no extreme one is back online running at 40% capacity. two days ago, i would think it didn't come back online. it's a low bar, so if you are looking for some good news out there. tom: we are thrilled to bring you some wonderful guests. gilles moec will be with us. i want to go to the issue for

lagarde, the politics of the moment. we have not talked about it this morning. the bundesbank, we don't know. jonathan: i would imagine the hawks are upset with what happened with italy because they had the opportunity to go hard today. the telephone is not whether it is 25 or 50, but how long this hiking cycle the last given the weakness expected in the european economy. tom: we are data dependent, christine lagarde is data dependent, the markets are, as well. the earnings season is pretty good and we see this wonderful economic market around our fracture. kailey: we will get some insight into how earnings are next week when the bulk are reporting with all of those big names, plus the federal reserve decision. to your point on dependency, europe is seeing record inflation but the ecb is still in negative territory, and even

if they hike 25 basis points, they will still be there. it is an adequately difficult situation when you have disinflation on the one hand and this very dire growth outlook on the other. tom: we all agreed that that is unmeasured, but is this a measured ecb this morning? i would suggest they are at 25 or 50. jonathan: whether the gradualism gets dropped today could be interesting. i don't know if you can offer forward guidance anymore in europe. gradualism is a part of this forward guidance toolbox, but i'm not sure that you can guarantee any particular part in europe. tom: when we invented surveillance, we said that we have to do economics alongside. let's talk about the data.

west texas, $96 a barrel. jonathan: we are down to 95.60. on the nasdaq, up by .1%. you'll tired by three basis points on the 10 year. in the treasury market, italy much higher than that, on the back of prime minister margaret draghi's resignation. tom: franklin mutual, they wonderful 12 months relative to their peers. katrina dudley is with us this morning, extremely knowledgeable on big cap europe. for the company that you follow in europe, i will add switzerland, what is the best outcome for lagarde in this hour? katrina: the commentary we are talking about is what is gradual? when we went into the year, i would have thought 25 was the

definition of gradual, and 50 was not so gradual, but now you have the bank of canada doing 100 basis points, that that doing 75. within her definition of gradual, she could probably get away with doing a 50 basis point hike. whether or not we see 25 or 50, we are in the 50/50 camp. what is important here, the need to balance. the ecb needs to raise rates to combat inflation, but they have a very benign growth outlook, and that has been reinforced by the message they are getting from corporate. jonathan: they meet again on september 8. i wonder what they look like, can you look at that bar? katrina: on september 8, we may have some resolution to the ukraine crisis. that would be good news. i think that would be the positive surprise that the market is not anticipating.

we have seen a gradual abating of these high energy costs. that's also important. i think europe will have a much more detailed plan as to how it d risks itself in terms of its reliance on russian gas. we potentially have that. finally, we have been talking about these anti-fragmentation measures that need to come out of the ecb. we may see those measures, more detail coming about those. that will be the backstop to those southern parts of europe. jonathan: that stinks of optimism relative to what we've heard this morning. how are you positioning around that? katrina: we are positioned for a little r recession. the risk of the market is that we talk ourselves into recession. maybe we just muddle through, and i think that is what we are positioned for. i look at sectors where you have expectations being very low, and a good set up because of some of

the supply demand dynamics, which you have had a really unusual period of economic times. supply chain constraints means that realistically our companies are not sitting on a whole lot of excess inventory this time. i think that will be what buffers us through this downturn. kailey: how does a weaker euro impact for investment decisions considering we are just barely above parity, and that could change in eight minutes? katrina: you are right. we are continuing to watch where the euro is trading. the european market is very much of an export market, so that is where the euro really comes into play, but we are not positioning our fund into whether the euro breaks parity or not. we are looking to expectations, those companies that we think and whether a mild recession and come out of it even better than when they went in. kailey: and what are those companies? katrina: in the united states,

we like the homebuilders, despite what we heard this morning. i think there is a real supply demand imbalance here in the united states as a result of the under building and supply chain constraints and things like lumber and labor. we look at homebuilding demand as really being driven by the creation of new families. with unemployment so low, we anticipate that will continue, and that demand for new families will drive demand for new housing. jonathan: a few minutes away from the decision. if you had to make a call, 25 or 50, which one is it? katrina: i think it is more likely to be 25. the ecb will take things gradually. i think they are concerned about the growth outlook and they are very much concerned about bringing in inflation, that some of those drivers of inflation are already starting to come down. i think we are more likely to see a 25 basis point than a 50.

jonathan: awesome to get your view on things. looking ahead to this ecb decision, it's about five minutes away. i am told we are 50/50 on 50 when it comes to market pricing. the consensus seems to be 25. we will get the call in about five minutes. tom: what i see on the note between 25 and 50, a lot of people are saying, i have a believe, but -- jonathan: if it is 50, do you have to deliver the anti-fragmentation, alongside the? tom: i don't know how you get anti-fragmentation through the bundesbank. i will let christine lagarde inform me. jonathan: going into this one in about five minutes. kailey: it could be exciting because we don't know what the right move will be, when we are

used to having some kind of definition around that. it will be interesting to watch the foreign-exchange action out of this. if the move is only 25, you could see more euro weakness. if it is 50, they think the euro could go up 2% on the dollar on the back of that. jonathan: ultimately, what will lead to a sustainable rally in the euro? something more durable. for that to happen, you have to believe this hiking cycle has legs, that it goes beyond september. i'm not sure anyone can guarantee that. tom: they have a war. the shock of the headline two hours ago on annexation votes. jonathan: it all hinges in many ways on european energy supply through the winter. there are no guarantees on the parts of monetary policy in the best of times, and these are not the best of times.

it is an ecb decision we have not seen since 2011. jean-claude trichet. we are about to get a rate hike from the ecb. the decision is just around the corner. ritika: keeping you up to date with news from around the world, let's get to first word news. i'm ritika gupta. the ecb is expected to raise interest rates for the first time in 11 years. it may consider an increase in double the plant quarter-point .i'm ritika gupta. the bank of japan leaves its rock-bottom interest rates unchanged. the central bank is wary of boosting rates and hitting the economy. it now sees inflation averaging 2.3% for the current fiscal year. that is the first time they expect price gains above its 2% target.

russia has resumed said the gas through its biggest pipeline in europe after a 10-day maintenance period. some have thought that it would stay out longer in response to the retaliation of russia's invasion of ukraine. american airlines expects third-quarter revenue to be as much as 12% higher versus third quarter of 2019 despite capacity running 10% or less. american reported earnings matching their rivals. the world's largest alternative asset manager, blackstone, cashed out on big deals this past quarter. that was driven by $29 billion generated in deal sales. meanwhile, write-downs led to a net loss of 24 billion. 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. >> there are certainly a lot of scenarios where euro-dollar could weaken from here. it feels like the bulk of the move is behind us. our target is around the 97 level. jonathan: the global head of fx strategy at rbc. we are one minute away from an ecb rate decision. futures are negative 0.1% on the s&p 500. euro-dollar, 1.0198. tk, the decision is 50 seconds away. tom: there is some real anticipation across the screen. all in all, dollar strength off a weaker em, but japan is the

ecb is the focus. jonathan: to delete going into this, prime minister mario draghi resigning. kailey: substantially higher relative to the german bund. we are looking at a boon spread around 225 basis points. talk about fragmentation. jonathan: the wide of the year, 240 basis points. the decision is about to drop on rates. that we will look for clues on this anti-fragmentation talk. no idea whether that we get that now or later. the news conference, 8:45. rates were expected to come in 25 basis points higher. it is a coin flip according to market pricing whether it would be 25 or 50. the decision coming out a little

bit later. we are higher by 50 basis points. a move of 50 basis points. that is your rate hike, not 25. you have to go all way back to 2011 for a rate hike or the ecb. back to 2014 when rates were last at zero. they are back at zero now on the depot rate. up 50 basis points on the marginal lending facility. 50 basis point hike from the ecb. we are looking for some headlines around this anti-repetition talk. tom: there is just one headline i see so far. we need more data. jonathan: let me get the statement. i will read the policy decision. in line with the governing

council, are the steps to make sure inflation returns to his 2% target over the medium-term. the governing council decided to raise the three key interest rates by 50 basis points and approve the transmission protection instrument, tpi. i want to get some details on the tpi. it will be in addition to the government's toolkit and can be activated to counter market dynamics oppose serious threat to the transmission of monetary policy across the euro area. scala purchases depends on the severity of the risks facing transmission. purchases are not restricted. tpi will allow the governing council to more effectively deliver on its price stability mandate. in any event, the flexibility and reinvestments coming in the pandemic emergency purchase program portfolio remains the first line of defense to counter the transmission mechanism related to the pandemic.

the details of the tvr described in a separate press release to be published. you will get that later. 50 basis point hike. on the euro, a spike higher by half of 1%. 1.0230. yields still higher in italy by 18 basis points. the 10 year higher by 20 basis points. kailey leinz, your thoughts on the back of this one? it looks like a loose definition of anti-fragmentation talk from the ecb. kailey: i think i got a description but not necessarily an understanding. people will be asking for more clarity from christine lagarde at that press conference starting at 8:45. you are definitely seeing the reaction in the bond market. the spread is narrowing now. the move in the euro is stronger on the back of a larger move than expected, although we did

get it floated earlier this week, so maybe this is the way that things go now. tom: the key headline is ex-a nte. i believe it is 9:45 when they get that document. the idea that they are not going to restrict before the fact is a huge deal. you will get some ex post after-the-fact analysis fro e christine lagarde. >> gradualism is out the window and perhaps even credibility around forward guidance. going 50 basis points means that this idea that they are getting exposed to forecasts going forward, it is hard to believe the market will take that seriously.

then we have this idea of ex ante. it is the market now going to challenge a crisis tool if they know it will be after-the-fact and not before hand? a locket for markets to adjust. tom: not so much with the markets will do with the x and t tool but what the per feel countries to. what will be the behavior to pick on portugal if they know this tool exists and there is not a before the fact restriction? dani: that will be the exact thing that christine lagarde will be pressed on during this press conference. look for many folks to get more details coming up because that is exactly the sort of thing that my p challenged by the german constitutional court. every program coming out like this has been challenged. but one so broad in nature, will that be able to pass? jonathan: we will catch up after

the news conference. dani burger outside of the ecb headquarters. the government counsel says that for the normalization of interest rates will be appropriate. the frontloading today of the exit from negative interest rates allows the governing council to make a transition to a meeting by meeting approach to interest rate decisions. that looks like the death of forward guidance from this ecb. that is exactly what we've been talking up through much of the morning. i'm not sure how you can offer forward guidance and a european economy like this one. tom: i think you'll hear a lot about optionality and data dependence in the press conference. like everyone else, they will act on the data and act on ex post basis, set up the fragmentation tool critically to act on ex post basis. jonathan: euro-dollar up by a quarter percent.

yields higher in italy by 25 basis points. 24 basis points on the 10 year. transmission protection instrument. joining us now is vassili serebriakov. talk about what we just heard from this ecb. >> i think the market reaction makes sense. we got 50 basis points which is in line with the bloomberg story that came out a few days ago. the point you been making about forward guidance apply not just to you, ecb, but other central banks. we have seen those quick changes of mind. that is the inflation picture in europe and globally. it forces central banks to frontload. it made no sense with negative rates at the meeting, and that is what the ecb decided.

to tom's point, fragmentation tool is the more important variable for the euro. we will be anxious to see all the details on that front. tom: to me what is so important is nonlinearity. we are nowhere near that with the ecb. how nonlinear is the guard's trip into next year? this gets ever more difficult. vassili: it does not get easy. i think the problem for some of the central banks frontloading now, if you are going to get to neutral and stop but inflation is not slowing, then what do you do? the ecb is going a little bit slower, they are starting later. we think they get to around 1.5% by next year, which is starting to push them into neutral or restrictive, as well.

the key variable is how quickly can inflation start coming down in order for these central banks to stop where they think they are going to stop? that is probably the key question for the markets. increasingly from here, it will be the growth inflation mix. that has been very bad. they are hoping they can hike without triggering an even deeper downturn. that is an open question. kailey: to that question, this bounce we are seeing in the euro, can it stick? vassili: hard to see for a long time. the problem is it is not just about the fragmentation. we will see the details about this instrument. i agree with tom's point, if it is open-ended, that is a good signal, if it is not limited. that might get us to 1.03 as far as the euro-dollar.

some of the bigger issues related to european growth are still there, gas supplies, what are we going to do this winter? in that sense, most investors are still quite negative on the euro, probably getting ready to sell the rally. whatever the ecb does today unfortunately does not change the threat of a deeper downturn in the next six months, if indeed we moved to things like energy supply rationing in europe. jonathan: pretty historic, have not been able to say these words for a long time. the first interest rate hike from the ecb since 2011. if forward guidance is dead, then the job of the president is to outline the reaction function of this ecb, so we understand what the incoming data means for the decisions they make. we were looking at 25 basis points up until recently, and

that changed in the last couple of days. jonathan: i look at something inside baseball, sterling swissie, and the answer is the stronger swiss franc. jonathan: stronger euro. it's telling yields are higher by 22 basis points. quick snapshot of what is happening with germany. yields higher by 11 basis points. more still to come. an ecb hike of 50 basis points. this is bloomberg. ♪

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jonathan: 50 basis points hike from the ecb, the end of negative interest rates, the death of forward guidance. markets remain unchanged on the s&p 500. the nasdaq up by .1%. euro-dollar up .6%. 1.0244. what this means for the september decision, that will be interesting. how durable is this stance from

the ecb? how sustainable is this rate hiking cycle? we have some data in america to talk about with mike mckee. mike: yet another increase in initial jobless claims in the united states, up to 251,000. that is the highest since november of last year, but that was when the rate was still coming down, so we are going the wrong way here. it is something to keep an eye on. still in a low enough range, well below 300,000, that it does not signal recession. but you never get a recession without a big increase in claims. right now, a lot of people are looking at the continuing claims number. that will indicate whether people who get claims stay on unemployment, and that is up again.

1.384. the philadelphia fed index is out. it comes in a little bit lower, significantly lower. down to negative 12.3 from -3.3. the market expected it would rise during the month. manufacturing problems slowing down here. prices paid index for the philadelphia fed rises -- walls down -- falls down. that suggest some lightning of inflation pressures. the new orders index was at -24.8, now at -24 .8, -12.4. significance done in -- slow down in manufacturing in the philadelphia area. jonathan: if there is a crack that will get peoples attention,

it will come in claims. they are heading in the wrong direction. what you have seen in the two year yield, i won't make too much about that, but we have turned around. yields were higher off the back of the ecb rate decision. now they are back to basically unchanged at 3.24 on the two-year. equities, nothing massive happening there. your thoughts on the trajectory of jobless claims at the moment? mike: it is an interesting contrast with what is going on with ecb europe. in europe, they are already down, expecting the possibility of recession, so markets are repressing for that. the fed has been raising rates but the market is started to price in the recession call. they are looking at the downside. numbers today support the downside. instead of hinting at a larger increase, as the ecb went into their meeting doing, the fed is

probably going to be locked into 75 this time. which, as chris waller said last week, is still huge, but not the 1% that a lot of people thought after the last inflation report. especially with numbers like this coming in from the philly fed, big drop in the prices paid index. tom: the trend of claims is tangible from march of this year. tell me about the duration of the trend. how many data points do you need to see where you say it is a trend? mike: i think we have seen enough to say it is a trend, but the problem with the high-frequency claims data, claims can be very lumpy. it is july, when a lot of auto company shutdown for retooling, and a lot of those workers are available for jobless claims, and we usually see a jump. it is hard to see seasonally adjusted because plants closed

out at different times each year, but that suggest that that is at work. as you point out, march 18 was the last time we saw a low in jobless claims, going up ever since. there is a trend in place of higher jobless claims. the only question is how much that means about a slow in the overall hiring and the overall economy. jonathan: mike mckee, good to catch up. euro-dollar, another upside surprise, 50 basis point hike from the ecb. most economists looking for 25. 1.0255. interesting to see if this bid in the euro sticks through the news conference. we will have full coverage of that on bloomberg tv and radio. the 10 year in italy is up. the new term that we have to talk about, tpi. tom: i like fragmentation better. jonathan: the details of which

will be unveiled at 3:45 central european time. tom: my prediction is christine lagarde will be reading off of a lot of prepared essays today when she answers questions. big move in the euro-yen. i will not go into the math of it but euro is stronger. gilles moec is with us today, arguably the most read in economics in europe. what will you listen for, ex ante or ex post from christine lagarde? gilles: it will be interesting sell for christine lagarde. what this has done today, by going to 50, whereas many telegraphed 25, it basically got rid of forward guidance. we used to have a pretty precise forward guidance from the ecb.

since they have done something different from what they announced last time, accordingly, they have said for the next decisions, it will be a meeting by meeting process, completely data dependent. i guess we will try to extract as much information from christine lagarde on what the next moves will be. i would expect her to be extremely guarded. we have a central bank today which is saying, i read the mandate, 50. sorry, i told her something different in june. as far as what is coming up next, we will see. it will be an interesting debate. the other issues on the rules of engagement of tpi, the name of the anti-fragmentation weapon. it is likely to be a big instrument, possibly a convincing instrument on paper. the questions everyone has is,

what are the circumstances under which you would actually activate it? consensus right now -- and i agree -- given the nature of the crisis in italy which is a homegrown political crisis, it is unlikely that you can use an anti-fragmentation instrument to deal with this. i guess christine lagarde will have a lot of questions on what exactly are those engagement tools. jonathan: a point on interest rates and another on tpi. let's start with rates. they will not give us a guide to what they will do in september, i get that. what she needs to establish in this news conference is the reaction function of the ecb. what they have let us to believe is that the next move will be a hike. what they are not telling us is the size of the hike. do you have a decent understanding of what the economic data points will be that influence the decision

between 25 and 50, and how we are meant to internalize that, come up with a view of what that means for european rate hikes? gilles: clearly cpi prince will be important. even by september we are unlikely to have a big change in the type of information we will get from cpi prince. you want to go up the pipeline in terms of inflationary pressure. the key is what happens with wage growth. that is a problem we have specifically in europe because reliable data on wage growth comes much later than in the u.s. when you have a central bank making decisions on the second round effects of inflation, you need to know where the market is going, whether or not we are seeing a crumbling of wage acceleration. that will be key. probably also a side issue, which is fortunately binary,

which probably explains why the ecb doesn't want to give us forward guidance, is what the russians want to do with gas. news today, apparently there is a trickle of gas supply going through nord stream one, but we never know whether or not this is going to continue for several months, whether or not the russians cut access to guess. in europe, the bolder between stagnation and significant recession is whether we have access to russian gas by the winter. that might actually be quite an important input in their reaction function. jonathan: briefly on tpi, the conditionality around this, best guess? what do you think it will be? gilles: i don't think it will be be. the next generation eu program will be about complying with european surveillance rules,

which at the moment have been suspended. the problem is that, for those milestones to be ticked, for this to be complied with, you need a government in italy that plays according to the rules. that is a big question at the moment. kailey: there is a conversation happening now on the terminal, you got the 50 basis points which appeases the hawks, but you also got this tpi which appeases the doves, so you have this crisis management tool to ensure the transition is smooth. if it doesn't work as intended, does the ecb get stuck here at zero? gilles: it is a possibility. i wouldn't doubt it. they really want to normalize. now, it is true that once you have hit zero, possibly the debate changes a little bit. at the governing council, a

number of people, including the doves, never liked negative interest rates. they always thought they were controversial. once you break 20, it is a slightly different conversation. however, given the inflation we are having, it would take a lot to stop normalizing from where we are. kailey: how much do you think they'll be able to normalize? what rate do you think they will get to before the economy forces them to stop? gilles: my forecast for the end of the year is 1%, which is the lower end of the range that they gave us for what they consider to be neutral rates. the end of 2023, if we avoid a catastrophe linked to the gas situation, they may go to the middle of that neutral range.

that would probably be the maximum of what i would expect. there is significant risk they get stuck at 1% if we end up with a significant slowdown, wage growth decelerates instead of accelerates. the natural slope for these is to get at least into the central range, which is at least 1%. jonathan: i've been talking to you for about 10 years, and this is the first time we have to talk about a rate hike from the ecb. thank you so much. euro-dollar positive on the back of this. 50 basis point hike, consensus was 25. of course, we started to lean toward 50 once we heard that some would be proposing the idea. euro-dollar up by .1%. 1.0267. we had this new transmission protection instrument. we will get some details on that later. off the back of this, we have

higher yields in germany by eight or nine basis points. you might anticipate that given the size of the rate hike. tom: the nonlinear nature of this is simple. u.s. raises rates into some kind of real gdp two point 8%, the hope of 3.5%. what does your raise rates into, 1%, 1.5%, the hope of 2.5%? it is a different nonlinear pat. reaction functions are radically different. jonathan: you tell me where russian energy will be at the end of the year. you are making a call on that particular situation. tom: we are seeing the phrase force majeure out there, i wonder if christine lagarde will mention that. jonathan: what do you make of it that the forward guidance, finally? tom: i never believed it.

forward guidance was dead the day it arrived. it is there until the facts change, the regime changes. i will go back to -- i sound like timberlake, dallas school. every central bank is after-the-fact, they cannot get out in front. what does tpi mean? jonathan: transmission protection instrument. someone said it should be called the spread manipulation program. i'm getting a picture of president lagarde walking out. we are expected to start that news conference imminently. tom: the blue goes with my bow tie. jonathan: it is the end of forward guidance. we have talked about that

reputedly through the week. the end of forward guidance, the end of negative interest rates. tom: i take your point. it is an historic moment. jonathan: the latest on the death of forward guidance from the governing council, further normalization of interest rates will be appropriate. they are calling it frontloading today. allowing the governing council to make a transition to a meeting by meeting approach to interest rate decisions. if it is meeting by meeting, we need to understand with the incoming data actually means for each decision that will be made. today, they have got to establish what the reaction function of the ccc actually is. his energy a part of that, is the russian gas situation a part of that? tom: we are in denial that there is a war. you don't model that. jonathan: christine lagarde

getting ready for the news conference. as soon as she speaks, we will be putting it on. banks trading higher as we escape negative interest rates for the first time since 2014. introductory remarks just beginning. the euro going into this positive at .9%. the first time since 2011 that we have had an interest rate hike from the ecb. the first time since 2014 that we have a bit at negative interest rates. the president of the european central bank. we can start listening in as she brings over the papers. >> i would like you to identify yourself and if you are joining or asking a question remotely, put on your camera and microphone, since we want to see and hear you. with this, i will hand over to president lagarde. pres. lagarde: thank you very much. good afternoon to all of you. the vice president and i welcome you to this press conference.

today, in line with i'm a strong commitment to our price stability mandate, the governing council took further key steps to make sure that inflation returns to our 2% target over the medium-term. we decided to raise the three key ecb interest rates by 50 basis points, and approved the transmission protection instrument that i love her to as tpi -- refer to as tpi. the governing council judged it was appropriate to take a larger first step on its policy rate normalization pat, then signals -- path than signaled at its previous meeting. this is due to our updated inflation risks in the reinforced support provided by the tpi for the effective transmission of monetary policy. it will support the return of inflation to our medium-term

target by strengthening the anchoring of inflation expectations, and by ensuring that demand conditions are just. to deliver our inflation target in the medium-term. at our upcoming meeting, further normalization of interest rates will be appropriate. frontloading today of the exit from negative interest rates allows us to make a transition to a meeting by meeting approach to our interest rate decisions. our future policy rate pat will continue to be data-dependent and will help us deliver on our 2% inflation target over the medium-term. in the context of our policy normalization, we will evaluate options for renew marie to

excess liquidity holdings. we assessed that the establishment of the tpi is necessary to support the effective transmission of monetary policy. in particular, as we continue normalizing monetary policy, the transmission protection instrument will ensure that our monetary policy stance is transmitted smoothly across all euro area countries. the singleness of our monetary policy is a precondition for the ecb to be able to deliver on its price stability mandate. the tpi will be an addition to our toolkit and can be activated to counter unwarranted disorderly market dynamics that pose a serious threat to the transmission of monetary policy across the euro area.

the scale of tpi purchases depends on the severity of the risks facing policy transmission. purchases are not restricted ex ante. by safeguarding the transmission mechanism, the tpi will allow the governing council to more effectively deliver on its price stability mandate. in any event, the flexibility in reinvestment of redemptions coming due in the pandemic emergency program portfolio remained the first line of defense to counter risks to the transmission mechanism related to the pandemic. the decisions taken today are set out in a press release available on our website, and the details of the tpi are described in a separate press release that will be published

at 3:45. i will now outline in more detail how we see the economy and inflation developing, and then we will explain our assessment of financial and monetary conditions. so, economic activity is slowing. russia's unjustified aggression toward ukraine is an ongoing drag on growth. the impact of high inflation on purchasing power continues supply constraints, and higher uncertainty are having a dampening effect on the economy. firms continue to face higher costs and disruptions in their supply chains, although there are tentative signs that some of the supply bottlenecks are easing. taken together, these factors

are significantly clouding the outlook for the second half of 2022 and beyond. at the same time, economic activity continues to benefit from the reopening of the economy, from a strong labor market, from fiscal policy support.the full reopening of the economy is supporting spending in the services sector. as people start to travel again, tourism is expected to help the economy in the third quarter of this year. consumption is being supported by the savings that household built up during the pandemic and by a strongly premarket. fiscal policy is helping to impact the more in ukraine, for those bearing the brunt of higher energy prices. temporary and targeted measures should be tailored so as to

limit the risk of fueling inflationary pressures. fiscal policies in all countries should aim at preserving debt sustainability, as well as raising the growth potential in a sustainable manner to enhance the recovery. inflation increased to 8.6% in june. surging prices were again the most important component of overall inflation. market-based indicators suggest that global energy prices will stay high in the near-term. food inflation also rose further, standing at 8.9% in june, in part reflecting the importance of ukraine and russia as producers of agricultural goods.

persistent supply bottlenecks for industrial goods and recovering demand, especially in the services sector, are also contributing to the high rate of inflation. price pressures are spreading across more and more sectors, in part, open to the direct impact of high energy costs across the whole economy. accordingly, most measures of underlying inflation have risen further. we expect inflation to remain undesirably high for some time ,owing to continued pressure from energy and food prices and pipeline pressures in the pricing chain. higher inflation pressures are also stemming from the depreciation of the euro exchange rate. but looking further ahead, in

the absence of new disruptions, energy costs should stabilize and supply bottlenecks should ease, which together with the ongoing policy normalization, should support the return of inflation to our target. the labor market remains strong. unemployment fell to an historical low of 6.6% in may. job vacancies across many sectors show that there is a robust demand for labor. wage growth, also according to forward-looking indicators, has continued to increase gradually over the last few months but still remains contained overall. over time, the strengthening of the economy, some catch-up effects, should support faster growth in wages.

most measures of longer term inflation expectations currently stand at around 2%, although recent target revisions to some indicators warrant continued monitoring. risk assessment. a prolongation of the war in ukraine means a source of significant downside risk to growth, especially if energy supplies from russia were to be disrupted to such an extent that it led to rationing for firms and households. the war may also further dampen confidence and aggravate supply-side constraints, while energy and food costs could remain persistently higher than expected. the faster deceleration in global growth would also pose a risk to the euro area outlook.

the risks to the inflation outlook continue to be on the upside and have intensified, particularly in the short-term. the risks to the medium-term inflation outlook include a durable worsening of the production capacity of our economy, persistently high energy and food prices, inflation expectations rising above our target, and higher than anticipated wage rises. however, if demand were to we get over the medium-term, it would lower pressure on prices. turning to financial and monetary conditions now. market interest rates have been volatile as a result of the pronounced economic and geopolitical uncertainty. bank funding costs have risen in recent months which has

increasingly fed into higher bank lending rights, in particular for households. while the volume of bank lending to households remains strong, it is expected to decline in view of lower demand. lending to firms has also been robust as high production costs, inventory building, and lower reliance on market funding have created the continued need for credit from banks. at the same time, demand from loan to finance investment has declined. growth has continued moderate owing to lower liquidity savings, lower system asset purchases. our most recent bank lending survey reports credit standards tighten for all lending categories in the second quarter of the year as banks are becoming more concerned about

the risks faced by their customers in the environment. thanks continue to tighten their standards in the third quarter. summing up, inflation continues to be undesirably high and is expected to remain above our target for some time. the latest data indicates a slowdown in growth, clouding the outlook for the second half of 2022 and beyond. at the same time, this slowdown is being cushioned by a number of supportive factors. the governing council has today decided to raise the key ecb rates and approved the transmission production instrument. at our upcoming meetings, further normalization of interest rates will be appropriate.