>> the fed have laid out their course. they're going to be hawkish. they will continue doing what they're doing. >> they are saying inflation in the united states still increasing will be a real problem until the fed gets their arms around the demand-side. >> usually, the fed does when out in the form of slower growth and a recession. >> this is bloomberg surveillance with john mccain -- tom keene, jonathan ferro, and lisa abramowicz. jonathon: good morning, good morning.

tom, coming up, and ecb rate decision, chairman powell speaking somewhere in that news conference. tom: somewhere in the middle of it. i have to admit, i am very surprised by this. just on a courtesy basis, don't step on each other. i don't know who is at fault, but we will do our best to cover it. jonathon: i saw that. today, talking about a 75 basis point rate hike. i will say this, maybe just a little bit of a difference expected from the ecb, some leaning toward 60, some leaning toward 75. tom: i took a one-day sabbatical. we went back to our school of our lady of perpetual tuition. over the last 48 hours, there was this warpath that europe is the same as america. it is not. and it's not just the war in ukraine.

there is a near zombie economy since 2009. [crosstalking] jonathon: do you think they're facing the same problems as the united states right now? tom: the animal spirit is out there right now. europe is deceptive. he had a boom. -- they had a big. it has simply flatlined since 2009. jonathon: they have extra crisis in the middle of the next decade and they're running into another one and another one. this is about energy. the price of energy and gas and europe -- gas in europe. lisa: it is reflected in the euro, as opposed to the dollar. it almost doesn't really matter

how much ecb hikes rates. when we are talking about the outlook, it is pretty negative until there is this conclusion or certainty with energy prices, with russia's war in ukraine. jonathon: everything hiking. maybe a downshift in future meetings. lisa: there was this meeting of officials of japanese members of different agencies, talking about the concern in the violent move that in the end, they said it was not justified. everything remains on the table. they are looking at this. it is concerning. jonathon: the yen is weaker. when everyone else's hiking, you are not. tom: i saw this article that is great off of our tokyo desk.

it is so blatantly clear that the constraint is the ill liquidity facing japanese bonds. this is a fictional theory. the bottom line is, what we need to do is study the ill liquidity . jonathon: i think the market is not a market. tom: it is fiction. jonathon: going into a conversation of the beast -- the ecb and chairman powell. the euro is just likely weaker. lisa: when you say that, i think about that back-to-school moment we are in. once upon a time, those japanese bond markets, it would be a fiction. christine lagarde at 6:15 am

how much can they give some sense of how they look at energy prices? they will be addressing liz truss on this. what is really driving these rate moves in the euro? and how much is tied to the members of the ecb. fed chair jay powell is participating in a moderated conversation with the cato institute, conflicting with christine lagarde. how much can she give insight when the market is pricing at a 75 basis point rate hike later this month? it is the summer of 75 basis points and that is how it feels. australia a little bit on the border there. we are also hearing other feds speak today. it is not just jay powell, although he is the headliner.

interestingly, around 2 p.m., we hear from someone we are not hearing from. u.s. treasury secretary janet yellen, who seems to be hiding. we've been talking about gasoline prices, talking about the greater inclusion of coal around the world. she will speak about green energy. we will see she has any insights into inflation. she backtracked. what do she say now, at a time when it seems protracted and like something very much at hand? jonathon: they should reschedule that and do it: 20. -- do it at 9:20. [crosstalking] there is a small issue, and we don't have to touch on it too long. tom: i just think there is

protocol, courtesy, my city to it as well. this is flat out graceless. jonathon: elsa lignos joins us now. what are you looking for? >> it's going to be interesting. i think the consensus is certainly leaning toward 75. we are still in that 50 camp. from the point of view of the currency, i'm not sure there is a huge demand indifference. what everyone will be looking for is the press conference and what signal we get who help for two or above neutral we need to go. tom: can you measure this for christine lagarde in a disparate europe? is it possible to find a neutral point? >> you are absolutely right.

it is difficult at the best of times. in the u.s. and canada and the u.k., central banks are precisely at a 10 point neutral. we think about neutral is being a combination of real neutral and inflation expectations on top of that. it's not too percent, or is it? as we said, in europe, so many disparate countries as a complication. that guidance around what they are looking for at the rate will be much of the reaction today. lisa: what is more important to you, the meaning today with christine lagarde or the meeting of the finance ministers tomorrow to discuss the plan on energy and households dealing with incredibly high energy bills this year? >> i think both are key inputs

into the outlook. you think about the meeting tomorrow, there are so many different paths on the table. we have the u.k. coming out today talking about the burden on the taxpayers. it seems there will be something in the form of a windfall tax. it sort of shakes the out -- shapes the outlook. i do think the other key factor to take into account is where positioning is at the moment. we see that yen coming under so much pressure and we hear so many headlines about gas in russia, and we wonder why europe is doing what. i thing it tells you about a lot of key positions right now. jonathon: we are about to get the biggest fiscal package one-off in the history of the country. what do you think this is going to do to that market? >> it's a great question,

because when you look at sterling, it is had a shocking time recently. it has been down to fiscal policy. this fiscal package could be astounding in size. the u.k. is probably the worst place in the g10 for that. jonathon: elsa, thank you for being with us. reporter: --elsa lignos there with us. liz truss addressing parliament later today and developing a plan. as indicated, it could involve uncapped liability for the government. this is a big, big moment. tom: we talked about this a couple days go before my sabbatical. all of this is about issuing jet

-- issuing debt. that's all there is to it. jonathon: the new chancellor was very keen to start the first day and point out that he backs the independents with central banks. central bank has been a big piece of the puzzle within the last month. lisa: how do they remain credible? basically, do they move away from the fiscal plans in order to support inflation? what does this do few get an unfortunate spiral of higher rates, higher borrowing, and then it wears the pressure release? currency, credit market? jonathon: it is a tough cut. we get the forecast a little bit later this morning as well. i am wondering if a recession is in that forecast in the same way it is in the bank of england. lisa: if it's not, i imagine there will be rather scathing

criticism, since even the ceos of major banks are saying it is inevitable. jonathon: futures unchanged in the s&p. this is bloomberg. ♪ >> keeping up-to-date with news from around the world. the european central bank is on the brink of a jumbo three quarter point increase in interest rates today. they are trying to get control over record inflation. the majority of economists surveyed by bloomberg say the ecb will take an unprecedented monetary tightening step. the pace of interest rate hikes by the federal reserve, goldman now expects them to hide by 75 points this month and 50 point in november. goldman economists right that the fed has not been as rapid as they would like. liz truss will use her first day

as prime minister to ease and historic cost-of-living crisis. she will lay out her plan to tackle energy bills. the government could end up spending as much as $230 billion over the next 18 months to contain the energy crisis. president biden is holding back on a decision to scrap any tariffs on china imports. earlier, the president had signed off on the exclusion process for materials imported from china. bloomberg has learned the administration is studying ways to help businesses seeking relief. operations in china are back in full swing after a factory upgrade and lockdown slowed production. tesla made a rebound from the 28,000 cars built in july. global news 24 hours a day, on air and on bloomberg quicktake,

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>> it means there could be a military contingency around taiwan. the people's republic of china

has actually stated this official policy that it is not taking the invasion of taiwan off the table. jonathon: speaking with jake sullivan, a national. you can watch the full interview september 21. looking forward to that in a couple of weeks time. this justin, antony blinken making an unannounced visit to give. tom: it is happening more and more to see president zelenskyy opening the bell on wall street. -- at the stock exchange. jonathon: crude got hammered yesterday. the euro-dollar, just about a parody guide with the ecb. it is a: 15 eastern time when we

get that decision. tom: west texas intermediate crude is under $80 a barrel january 10. that is the last time, way before the war in ukraine. jonathon: interesting stuff. tom: let's have a moment for ed morris with goldman nailing this. jack fitzpatrick, what does garland, the department of justice do about this special master question? the mystery of this is tangible. make it clear for us. what is next? >> it is tough to make it clear because the special master could slow things down. i think that is one key concern from the fbi and justice department, that it is not clear right now how long the process

of reviewing all of this will go on. the next step is not imminent. we know that. or at least the significant next step, because the justice department has guidance that they are not supposed to take very, very significant legal action, like if they were to charge former president trump with any crimes within 60 days of an election. they are already in a bit of a holding cycle, but one of the main questions they face now is, what does the special master do to whatever timeline the justice department had in mind? tom: my knowledge of this is a mason that my mother used to watch. i'm far too young to have watched it. the problem would be solved by the end of the episode. if they appeal this, doesn't that happen somewhat rapidly, so it obviously goes to the supreme court somewhat rapidly? >> an appeal could happen more

rapidly. if that goes to the supreme court, that is not a speedy process. again, that is one reason why the timeline on all of this is pretty hazy. yes, an appeal from the justice department would happen more quickly. that would not be bound by their 60 day guideline on taking those actions. lisa: that is some domestic interest. antony blinken making an unannounced visit to kyiv. with respect oil cap -- oil and gas prices, are we in favor for supporting ukraine? president biden met to shore up support.

how much will that help with the pain in that natural gas patch? >> from the u.s. perspective, the challenge would primarily be trying to keep european allies on board. increasing energy prices is not politically convenient anywhere, but it seems the white house is focused on trying to keep everybody circling the wagons. you see that with the video call coming up with some european leaders today. the willingness to provide support for ukraine is not flagging in the u.s.. there is talk about another batch of military that congress would provide, in a bit -- in addition to the $2 billion news that came out in the state department. yes, energy prices make things challenging. there is no reason to think that

the u.s. stance has been fundamentally shaken. the challenge that you see them trying to address with the call coming today is, can there be further displays of unity before things potentially get worse this winter? jonathon: jack fitzpatrick there in d.c. i think that is the right question, whether things get worse this winter for europe. last couple of days, gas prices in europe are coming off a bit, especially this morning, down by about 7.5%. lisa: perhaps it is in anticipation of whatever comes out tomorrow with energy finance ministers around europe. liz truss also possibly giving an idea of how things will go in the united kingdom. european leaders are saying they are already moving away from russian dominance. they already have a lot of pathways that russians clutch.

jonathon: what did they say to as yesterday? it will be somewhere between 2025 and 2027 that we will see the crisis in europe coming back to where they were at the beginning of 2021. that is how long this is going to take. tom: this really goes to the press conference today. for you and me, it is not a snooze fest. we have to identify an x-axis between the banks and others who disagree on common ground. jonathon: the ecb wants to complain, but you and i say they need to contact the federal reserve this morning. chairman powell is going to interrupt halfway through this. lisa: i love that we are basically trying to create some kind of role here between the ecb and chairman powell. [crosstalking] you're basically saying that if

you're going to have anger, channel at the right people. that is what's going on here. jay powell is just stomping all over it, making this fiscal. jonathon: have we seen answers like this? tom: i think the answer is no. jonathon: futures unchanged on the s&p. i promised i wouldn't bring it up again and i did it twice. lisa: what is that? jay powell is calling. he said it is completely coincidence. jonathon: i'm sure. from new york, this is bloomberg. ♪

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jonathon: live from new york city this morning, good morning. what a morning we have coming up for you. and ecb decision just around the corner and you will hear from chairman powell. at the same time, you will hear from christine lagarde. one day top for the s&p, back to early august numbers. you've heard a lot about the government changing their calls. we have a 75 for september.

maybe the fed keeps hiking through 2023 as well. that is where the debate is at the moment. one thing you cannot call unchanged over the last month has been the japanese yen. euro-dollar on top of parity right now. dollar-yen is slightly weaker on the session. this is happening even with a bit of verbal intervention from japanese authorities. talking won't get it done right now. the issue at the moment is action and policy. the bond market up about 25 basis points, keeping rates unchanged when everyone else's hiking. that is where you start to see this weakness. i think there was a very, very interesting point about what comes next. what we're going to see is growth expectation elsewhere converge lower.

the japanese economy looks a little more attractive as you look further out to 2023. making the point that the yen starts to get a little more attractive. that is not where we are right now, but it could just be around the corner. tom: there is a lot of talk about it. you have big figure moves in these currencies and there is a point when you step in and go the other way. as foreign relations says in their 100 year issue, there is so much uncertainty out there. i don't know when a win is a win or how i can analyze that. there are a few others to go with it as well. we are going to dive here into the eu and u.k. economics, and the choices to be made, including in america. jennifer mckeown joins us, formerly with the bank of england.

jennifer, it is a wide understanding in america that the west texas intermediate matters to joe biden and chairman powell. crude is back pre-ukraine levels. that matter to christine lagarde and the governor of the bank of england? >> it matters, but not as much is what has been happening to the gas price. it has come off a bit lately, but it is still 10 times the prewar level. that is a major issue in europe at the moment, the one they will be focusing on. this price helps to take some of the heat out of energy inflation, but nowhere near enough. tom: can you do real gdp analysis of europe or are things so distorted that real gdp or nominal inflation, the traditional analysis, just doesn't work? >> it certainly makes things a lot more difficult.

i know the ecb governing council members at the moment are in a dark room. taking big steps is much more dangerous. i think that is a really fair judgment of the situation. the high inflation rates do make things difficult. lisa: can you give us a sense of just how challenging this moment really is right now for the bank of england, in the face of fiscal expansion, expanding fiscal deficits? liz truss about to explain how much she plans, at least in the short-term term, to support households with the incredibly high national gas prices. what would you be doing? is the bank of england just planning to hit -- to rate -- hike rates until it becomes a painful point and no momentum? >> they have already said there is going to be a recession, unlike the ecb.

they intend to keep hiking anyway. the implications of this announcement from liz truss today show we are really concerned. if she kept energy prices, that helps ease some inflationary pressure in the future. and with the wage price spiraling, on the other hand, she is boosting demand. from what we have heard from mpc member so far, they have been more concerned about that, about the likely upward impact on inflation. i think it just adds to the case for the bank to continue hiking aggressively now. jonathon: have you ever seen a fiscal package gets a large? >> i can't remember, but it really is large. we are looking at about 6% of the gpi, if that is correct.

what we have got to remember is that the u.k. has actually done at relatively little so far, compared to the likes of france, greece, or we have seen bigger support and price caps already. we really were waiting for something to come through. it is good news for the economy and for households that the real worries look like they're going to be targeted. it will be by funding, rather than by a windfall tax dollar, as other economies and policies have been proposed. jonathon: we could see one of two things happen, or maybe both. high yields or a weaker currency. yesterday, sterling broke down to levels we have not seen since the middle of the 1980's, 1985.

11406. remember when we look at sterling, you start to worry. is that the moment now? >> i think maybe not now. the u.k. is not an emerging market. we don't have large debts nominated in foreign currency. it does feel like we are kind of heading into a crisis point. i think in terms of profit, market expectations might have gone a bit far in our view now. it may be ultimately that it turns out the fed doesn't need to go quite so far as markets are pricing in. tom: that was brilliant. jennifer, help us here with what you just said, so everyone calms down. the answer is, if we assume a war that is six months old, the united kingdom has had wars that were a lot longer than six months. you issue debt and move on.

i don't hear a panic in your voice about the issuance of new debt, given a war. am i right? everyone should come down? >> i don't think there is a reason to panic at all. what i am more concerned about is what the issuance of new debt means for the future. i think it would be more sensible to impose a windfall tax on energy companies, of which there are very large ones in the u.k. to fund this. i don't know why that hasn't happened. i think there really needs to be some consolidation of the public finance in the year or so to come. lisa: what kind of inflation rate is the united kingdom looking at, when they are in the range of potentially 22%? >> i think it depends a lot on what liz truss announces, probably looking at a peak of about 15%. these rights are clearly astonishingly high. inflation should come down

pretty sharply next year, not the least because of this leap we have in energy prices. the prospect of it coming back down to target is a normal framework around two years. jonathon: jennifer mckeown, we appreciate your time this morning. we are going to hear from prime minister liz truss any minute now in parliament. i don't think you just move on. that's a problem, you don't just move on. if you are meant to take on uncapitalized liability, how do you move on? i will go a step further. what the treasury is potentially putting us on the hook for now is paying the margin that the consumer would be paying, the additional profit margin, to the energy company, and then not follow that up with a windfall. what is that going to mean further down the road, when we have some kind of consolidation in the u.k. that mops some of this mess up? who is going to pay for that?

tom: who is holding back a windfall profit tax in the united kingdom? the chancellor? jonathon: everyone seems to be on board with that. argument they're making is that the previous government and leadership made. you have to worry they don't get investment at a time when you need investment. i think things have changed a lot. you can see how much they've changed in the last couple of days. this could amount to 6% of gdp. it is not like the furlough program. that program and the pandemic was very targeted. that is not what we are going to hear. lisa: i think if you actually look at the transformation of the concept of conservative politicians, there is this idea of conservatism when it comes to business and profits and how you intervene on that side. those are not the same conservatives with respect to borrowing, with respect to some support to households and a time of crisis.

this conflict is becoming more and more acute, as you deal with the fiscal backdrop that looks really daunting at best. jonathon: we are facing a recession with reports on what we will hit. may the prime minister has had a change of mind in the last 24 hours and we will hear something different. we will hear with this plan actually is. what we have been led to believe is that it is very, very big. tom: absolutely. i'm watching the monitor. the prime minister just it up and she sat down because she was listening to you. oh, she is getting up again. i love this. it is so different than america. lisa: she was be get 9:08. jonathon: i think we can take a listen, if they have a sound for this. no, they're going to the music for the break. do we have the prime minister? >> the new energy price guarantee that will give people certainty on energy bills. it will curb inflation and

produce growth. this guarantee, which includes a temporary suspension of green levees, from the first of october, a typical household will pay no more than 2500 pounds per year for each of the next two years while we get the energy market back on track. this will save a typical household 1000 pounds per year. this is an addition to the 400 pound energy support scheme. housing agrees with energy retailers. i will make way and a few minutes, when i have made some progress. mr. speaker, we will deliver this by securing the wholesale price for energy, while putting

in place long-term measures to secure future supplies of more affordable rates. we are reinforcing this country through this winter and the next, texting the recourses of high prices, so we are never in the same position again. for those who think to keep the oil or those on heat networks, we will set up funds -- >> prime minister, sorry about this, but i want to say that i don't want a running commentary from here. you will give way when you feel it is appropriate. but just to let you know, there is no big print. >> thank you, mr. speaker. for those living with heating oil or on heat networks, we will

set up funds so that all u.k. consumers can benefit from equivalency. >> you estimate 6.5 million households in poverty. 2.5 thousand pounds is not going to help. >> mr. speaker, we are taking action to help people on the lowest incomes with universal credit. we are also supplying 400 pounds to the energy bills. jonathon: that is liz truss outlining her plan for energy in the united kingdom. am very pleased to say lizzy burden is standing by. what have we cardi? -- what have we heard? >> she said that they are giving 2500 pounds per year.

this is going to be a huge relief to households. it is convenient that it is going to last for two years from october, when there is a general election do in 2024. but this is the new normal. we have the former chancellor on the program and he was saying that people need to change their behavior. the market needs to adapt. but the government is going in and subsidizing the wholesale cost. tom: is this bipartisan or is this the conservatives alone? >> i was having a discussion with an economist about this this morning. the parameters of the situation mean that this is probably the only likely outcome. we had the energy crisis at the

heart of the cost-of-living crisis. they had to stop inflation going about 20%, as goldman sachs has predicted. the announcement from bloomberg economics is that this means inflation has peaked. lisa: there is a lot of agreement that there needs to be fiscal support for households. there is not necessarily agreement on sibley abandoning the idea of a windfall tax. why is that not on the table at all, even though a lot of people are concerned about capital flight, about foreign investors not financing this growing fiscal deficit? >> liz truss was very clear with the questions yesterday. she said she was not going to use the windfall tax on energy companies, but then later in the day, it seemed that she would continue. perhaps what she meant by that is that she would increase the rate beyond 25 or included -- or extended to include power generators. we have seen government

economics. it is happening across a range of topics. the one full text is not as clear as you might think. jonathon: no windfall tax tessa -- to find the package. fiscal statement this month. later this month, when we hear from the chancellor, how big is this? i mentioned they can even give us a number, given what happens with gas prices. >> that is what's going to be so scary, with the charts projected on the wall that the treasury, the tap they are picking up is some unknown. we had the chief economist of the bank of england and four lawmakers yesterday saying that the goldman forecast of 22% was lowballing, given what could've happened in the gas market. taking up an enormous debt here. jonathon: lizzie, thank you.

two years, tom. uncapped liability for two years. i imagine gas prices come down and that liability falls, but this is going to be very interesting to see what the chancellor says later this month when they come down with estimates on what this all means. tom: also, what the bank of england will do, how they will respond and adjust to this. i just have to say, there are some any variables of uncertainty. i think the gaining of it is frankly useless. a lot of it relies on putin in moscow. jonathon: i think that is something we can all agree on, that it comes down to gas prices. and whether this is eventually complemented with some kind of non-destruction, something to curtail demand in the u.k., as europeans are planning to do so. lisa: it is important, because one person got a call directly

related to gas prices. we're looking at demand destruction in the united states. what happens when you interfere with markets, because you have to, but where then do you add the extra consequence of destruction to get back to normalcy? jonathon: joining us now is katrina dudley. and on twitter, monetary yields lows. monetary yields at...? >> we are looking at rate hikes that are unprecedented in terms of what we are coming from. we are talking about inflation. two years ago, talking about inflation rights -- inflation rates of 20%. we would not even think that was over the horizon. from our perspective, it is a

new economy, a new normal, and it needs a different type of analysis in order to adjust. tom: can they issue the bonds with impunity? what amount of bonds will they issue? >> they need to ensure that there is a confidence in payback. you have obviously seen people around for so long in the u.k. that it is going to be an issue. but the fact is, this is not quite wartime economics that people are thinking of, down in response to wartime efforts. this is really done in response to the energy crisis. tom: so, you are not linking what is going on in the united kingdom to the war in ukraine? >> i think you are seeing the fact that people are realizing that this dependence on gas, the dependence on russia, is really hurting the economy. i think there are two things that need to happen.

first of all, you need to get people being responsible for their own energy usage and realizing that energy has a cost, and you need to make sure that there is some level of demand that comes from having high energy prices. number two, we really do need to make sure that our energy companies are helping us transition away from this dependency. that means you cannot have those windfall profit taxes, but a lot of people are talking about it could really leave these companies to invest. they need to be partners enabling this energy transition that has come to a head as the result of the war. lisa: which really raises the question about fiscal policy and policy in general, with respect to the strength of the economy and the strength of a nation. how long can the u.s. remain the one shining beacon amid a lot of pain that has been over the last couple of months?

>> let's take a look at the u.s. market. you have energy security and you have markets that are operating as they should. if we switch that conversation over to europe, what we are starting to see, as we talked about repeatedly, is the defense security, that spending needs to happen. that has obviously got an application from a fiscal point of view. we have energy security and i think that we need to be considering that that needs to happen and it needs to happen in partnership with commerce. finally, we need to have responsibility. in europe, we coming from a time when we have had such divide and so many of these political parties arrive. i think the high inflation, the haves and have-nots, are really going to come into play and changed the political landscape further for the next five to probably 10 years. the one good thing about this

policy i do like is that liz truss is only doing it for two years. while people are commenting that this aligns with the next general election, she is not boxing in her predecessor, or could be her as well, and continuing these policies. i think that is really important. we need to be able to roll this back if the market starts working the way we think it should. lisa: what is the level where you would feel comfortable investing in sterling and 10-year u.k. gilts? >> in terms of currency, i think parity, for example, you look at where the british pound is. i think there are always opportunities. i tend to bring things down to the stock level. we are looking for opportunities in the u.k. stock, and we think the market is over penalizing against this negative backdrop. jonathon: thank you for

responding to all of this. the prime minister of the u.k. just moments ago, laying out options in the global energy crisis. if we laid out the decisions that need to be made, topped more best decisions, or the least worst decisions they can make, what is that? that is a tricky position to be in and what we talked about all day yesterday. lisa: has there ever been a premise to the cayman toy worse economic background and trusted? jonathon: liz truss, what option did she have but to come out with something like this? tom: i feel like a complete amateur. you have lived this. i was absolutely stunned at the diversity and age of this cabinet and prime minister. it is so radically different than america. jonathon: i think anyone

following the conservative party for a while knows the history of that. tom: i think the young this person we have in washington is 75 years old. i am kidding. but it is about change. she is stepping forward here. what is the next step for her? after this energy announcement, then what? jonathon: i think it's about what happens with energy prices. if gas prices keep climbing, i have no idea if they will or not, that will dictate how much they have to comfort the energy companies. there will be more pressure to revisit the idea of a windfall tax, which they have explained this morning. lisa: there is this idea that we were just talking about that energy come in his need to be part of the transition away from energy dependence. what is the incentive going to be? if you are giving that money to them, how aggressively can they

put that capital to work to really get a different kind of energy system? it crates a whole host of complicated issues. jonathon: i think the rate decision might be a little complicated. lisa: [laughter] jonathon: for the bank of england big talk on the ecb is just around the corner. catching up with luke kawa. looking forward to that. on the nasdaq, up about 0.1%. tom keene, the cerebrum wakes, i am jonathan ferro. this is bloomberg. ♪

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>> the fed have laid out their course. they're going to be hawkish, they're going to continue doing what they are doing. >> they are inflation in the united states still increasing. it will be a real problem until the fed get their arms around the demand-side. >> eventually, the fed does win out in the form of slower growth and eventually a recession. >> this is bloomberg surveillance with tom jonathan ferro, and lisa abramowicz. jonathon: global central banks. live from newark central this morning. good morning to our audience

worldwide. this is bloomberg surveillance on tv and radio. tom keene, lisa abramowicz, and i am jonathan ferro. in the next few hours, you will hear from president lagarde and chairman powell. tom: liz truss just made announcement. you will wonder what christine lagarde will do with moving parities. jonathon: can she move the euro with higher interest rates? is it even about higher interest rates? does it even make a difference with this euro? tom: we are in a war economy. certainly, the updates in ukraine, taking some square footage, shows the back-and-forth of the war. she has got to address the war. jonathon: when it comes to sterling, are there other avenues? lisa: i don't know.

the pound is down 0.1%. i wonder how liquid this market is, at a time when other people have called it -- i don't want to throw you under the bus -- given all the volatility behind the scenes. right now, we are looking at, is the market being dictated by something other than central banks? bankers are scrambling to try to get some kind of decision response. jonathon: inflation is flooding the u.k. and particularly europe as well. can they keep on doing that? i think we've all been surprised by the scale and the magnitude from the u.k. this morning. also on the ecb, the fact that we're talking about 75 basis points from the ecb is something we were not discussing at all even a month ago. lisa: this cannot be overstated. we were talking not too long ago about 17.7 trillion dollars of negative yield bonds. now, that number has dropped to

about $2 trillion in japan. in europe, you're looking at the possibility of 80.75% interest rate after today's meeting. how does that change the absolute scale of what we're talking about with borrowing, with economic borrowings, at a time when you are also seeing a lot of constraints with energy prices? jonathon: you mention japan. the headline from japanese authorities, these moves are clearly sensitive. a bit of intervention this morning. tom: as i mentioned earlier, to me, it is just a question of this experiment they have on who owns bonds. the answers they are collecting bond ownership in japan. help us with the translation in the united kingdom. the prime minister ending moratorium on show gas extraction. as you know, the chancellor has been really overt about nord see oil. it falls onto lagarde today about shale, coal, uranium, esg.

jonathon: it is a question you have asked a million times. this esg debt, is it the new reality for europe and beyond? tom: how does labor respond this? how do they respond across europe? jonathon: the new export by 2040, that will take a lot of investment. they say they are against at the moment. lisa: how do they guard this investment, push it in certain directions that they want to see? there are a lot of question that remained to be seen. it is a really tricky one to sell. lisa: it is -- jonathon: it is a tough spot for anywhere this morning. we will hear from chairman powell and president lagarde a look bit later. we are going to have to work out on bloomberg tv and radio which one we bring to you at what time.

the nasdaq 100 up 0.2%. gas is down in europe. that is some good news for you. crude has been lower in the last 24 hours as well. we are bouncing back just a little bit while -- a little bit right now. lisa: i would argue that if we wanted to take one of them, we should take christine lagarde. i would argue that this is the more important news conference, the more important statement, at a time when europe is facing a much more severe crisis in many ways than the united states. we get the ecb of decision, president lagarde speaking at a: 40 5 a.m. fed chair jay powell will be commenting. the euro has been deteriorating. what kind of rate hike would be supporting that currency? we would like to cover that today. jay powell participating in a moderated discussion at the cato institute. i think it is awkward time in,

especially because there are actually a pair of papers being released at the same time from different in pen? deming's saying the federal reserve is not adequately accounting for how much pain is being suffered around the world in order to get inflation lower, given the dominance of the dollar, given how high rates are expected to go and will go even further. other speakers today include charlie evans and the michigan president. u.s. treasury secretary janet yellen is giving a speech on some of the green policies of president biden, the latest spending fiscal package. it goes to the question, if we have treasury secretary janet yellen trying to push this and we have financing for in the united states, how does that conflict with the reality on the ground, very much prioritizing some of the older, unclean energy like coal and fossil

fuels? jonathon: looking forward hearing from the treasury secretary, coming up later. joining us now is luke kawa. i will ask the question a lot of people ask. when do the rate cuts start? >> i would argue that is still being debated. there will be a degree of stickiness. after the fed hikes this much this fast, i think in all of the rate volatility we have this year, one thing that has been consistently underestimated is the sturdiness of the u.s. consumer, the sturdiness of the u.s. labor market. that, combined with a fed that is not going to be too quick, you have to throw in the towel and declare three on inflation, i think that is a recipe for trying to think for a tactical investment environment without needing rate cuts. that is something that you

should see more and more priced in. is there room to grow? may be. that will be a decay in pricing, getting the rest of the cut off going to be every month the u.s. labor market showing is taking a bit of a licking, but it is still taking. there is kind of a joke here, just looking at something someone told me about a lobster thrown in a pot of boiling water dies, but a potato softens. if you think about the boiling water as rate hikes, we are making a good mashed potato. ramifications for the rest of the world in terms of dollar strength and what lisa was alluding to, and papers that are going to be released, this is a tightening of financial conditions for the world over,

more so than is being delivered to the u.s. economy. one thing i think we have learned in this cycle that is different from 2019 is that once you start caring about inflation expectation, the luxury of being central bankers to the world disappears. lisa: i miss you. your food shots on twitter and some of your culinary-minded analogies are fabulous. i'm wondering what this means for allocations. i know you are neutral on equities in the u.s. what does that mean, and is the rest of the world, for the most part, not investable? >> i would say that as you look across the spectrum and stay neutral, that is a duck floating on water. under the surface, the legs are kicking. profiles within an asset classes, one thing we think about is from the perspective of relative equities, there is a lot of defensive trade that

still makes sense. the rate fall has peaked, that is traditionally going to be a good thing for financial assets. it is tough to get too optimistic about their earning power in an environment where you are still expecting economic activity as well. his the rest of the world not investable? certainly not. but when you have "risk assets," a lot of different scenarios from a macro perspective, you would be looking at a stronger dollar as something that upsets the apple card in a lot of cases, whether that is just a good news and bad news type of thing, whether that is an energy price drop, which will be more affect in terms of other countries, or whether they slip this into a recession. from a portfolio context, that makes a lot of sense. there are short exposures out there that are better expressed outside of currency. jonathon: the author of kellan

onyx. -- kawa-nomics. every time we get a decent jobs report, i'm looking at this idea that may be the market is more resilient than people thought it would be. lisa: how much does it hinges on the gasoline prices going down so drastically in the united states? how much can that continue, given what you are seeing with the petroleum reserve and overseas? tom: i think it is important for luke kawa, he takes every single analysis since 1967, dow up 10.2% per year since 1967. i think it is a luke kawa analysis. last one was 52 years ago. jonathon: you could be an

intern, tom. tom keene, lisa abramowicz, jonathan ferro. tom: not a snooze fest. jonathon: live from new york, this is bloomberg. ♪ >> keeping up-to-date with news around the world. the first word, i'm lisa mateo. in the u.k., the liz truss government has announced a sweeping package of measures that contained spiraling energy bills. the goal is to ease a historic squeeze on the cost of living that is likely to define her career shift. the program will lay out how consumers pay for electricity. it will cost the government billions of dollars. the federal bank is on track for 75 basis points hike today. we predict the ecb will take an unprecedented monetary tightening. president bynum will host a video call today with allies on support for ukraine. among those taking part, the

group of seven leaders, along with leaders from the european union and nato. it is all taking place at a key moment in the war. ukrainian forces have launched a counteroffensive against russian troops. meanwhile, vladimir putin meets with china's xi jinping next week. president biden is holding back on an idea to scrap tariffs on china imports. earlier this summer, the president had signed off on a new exclusion process on manufacturing materials imported from china. bloomberg has learned the administration is studying ways to help businesses seeking relief. tesla operations in china are back in full swing after a factory upgrade and lockdown slowed it down production. the electric carmaker delivered a near record 770,000 -- 77,000 cars in august. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries.

i am lisa mateo. this is bloomberg. ♪

>> this guarantee, which includes the temporary suspension of levees, that from the first of october, a typical household will pay no more than 2500 pounds per year for each of

the next two years while we get the energy market back on track. jonathon: fiscal intervention from the british prime minister liz truss just moments ago. live from new york city this morning, good morning from tom keene lisa abramowicz, and jonathan ferro. the nasdaq up by 0.05%. just under a little less than an hour from now, we will hear from the ecb on a rate decision. after that, it is confidence -- a news conference with president lagarde. moments ago, referring to the labor market as a potato, something that doesn't die and hot water, but softens a little bit. it is a noodle cooked carefully. nice and tasty. cook it too much and it falls apart. there you go.

[crosstalking] tom: the way i cook, it is a swanson tv dinner, hopefully defrosted. today have tv dinners in the united kingdom? jonathon: not the one you described. they have microwave meals, of course they do. it is not the 1970's, tom. tom: we will do a sterling analysis here in a bit, but right now, will kennedy joins us . all of our energy efforts, will, the zeitgeist in america, is this somehow going to go for -- going to get fixed? norway to the rescue. do you have the optimism that europe can cobble together an energy solution? >> i think there is a real determination in europe and the u.k. right now to put together a package of measures to get through this winter.

this winter is going to be a really difficult plan without russian gas. hopefully, there will be more supplies. it looks like every bit of gas we can get across the atlantic from the u.s., every top -- every drop we can get from europe, cushioning blows in the u.k. it looks like making sure that energy market has liquidity it needs. tom: politically, as the prime minister mentioned shale, you -- up to aberdeen and look out across the north sea, could the united kingdom actually come to its own rescue by development of the north sea further? >> i think most people in and astray think that impact will be marginal. of course, a lot of political crosscurrents here. we were talking about energy transition and there was a lot of pressure to stop the oil and

gas industry. now, that has changed. i think there is a real will to get people drilling again. when we look at fracking, there is gas in the northwest of england, in particular, but it doesn't look like texas. it is clouded. people don't want huge trucks full of sand and drill leaks in their back garden. in the u.s., if someone finds gas where you live, you get the money. that is not true in the u.k. and it makes the project very, very different. tom: wait, does the queen on the land under shea farrow in the midlands? jonathon: now. -- no. opposition saying the windfall tax, the pre-minister unveiling

a plan to cap prices. uncapped liability, given reports all week, can you run me through what we heard this morning and why they are not keen on a so-called windfall tax? >> i think it's apolitical, almost ideological thing. liz truss is coming to office on a taxcutting platform and i think the last thing she wants is to make her policy a new tax. i think she's really opposed to it. the argument is that they want the industry to have the capital to invest in renewables, in fracking, in the north sea. clearly, it is a dividing line about who is going to pay here. at the moment, is the taxpayer going to pay for all that you? -- all of it? lisa: the conclusion of the headline, it u.k. says aid will

cost the treasury billions and cut inflation. is there any positive outcome? >> it probably is in the short term. when people made their forecast, city -- citibank said 22%. that was largely based on the idea of the energy forecast for household to rise and rise. you might get household paying 5000 pounds or 6000 pounds per year. capping that for two years, that element is taken out of the equation. it will put a caps on inflation. our longer-term dangers about what happens to british finance and what that means for the pound. i think in the short-term, yes, one of the attractions of this policy is that it will have a positive impact on inflation. jonathon: you framed that

perfectly. thank you, sir. just perfect, talking about how on the one hand it will reduce inflation, relative to what we expected to much of next year, but at the same time, it introduces a bit of risk to the gilt market. we have imported inflation into the u.k. with a much, much weaker pound. tom: sterling is stunning. the midpoint of the volatility study is a stunning 11766. that is miles away. it is a blip can -- compared to the two -- the deterioration we have seen. jonathon: brutal. i was joking yesterday that you were in line for the new iphone. were you in line? tom: no. this is old. i did not get that 13.

john, they made a watch for you, finally. lisa abramowicz is running 20 miles per day. jonathon swims the hudson river and there is this new ultra watch. a watch for you. it is like $15,000. jonathon: that's more like $40,000. tom: you can get a watch man. it just says you. jonathon: i'm not into those kinds of watches. tom: [laughter] [crosstalking] jonathon: from new york, this is bloomberg. ♪

(police radio call) (sirens) (news report) (sirens) (news report)

jonathan: deutsche bank came out yesterday and said, if we get a recession on the s&p, we will see three thousand. if we do not get a recession, we might run it back to 4750. the difference between a recession, not a recession, 3000 or 7.50. futures unchanged on the s&p 500.

nasdaq unchanged. into the bond market, news from goldman, reports of 70 five decision from a federal reserve later this month. two year yield, 242.49. euro unchanged, even with intervention from the japanese authorities. dollar-yen not doing a lot, dollar-yen 143.54. the tiniest bit of japanese yen strength, sterling at 115.35. yesterday, lower the session, 114.46. weakest currency, weakest sterling we have seen against the u.s. dollar going back to the mid-1980's. we heard from prime minister liz truss to cap energy bills, the exact price of this plan is hard to say because it depends on where gas prices will be. it could be two hundred billion dollars plus over the next two years, we will see. tom: i am so glad we had this

moment with you. a former prime minister speaking from behind the bench to the new prime minister. jon, i have to go to john quincy adams for an american equivalent. explain this. this is, to americans, this is as foreign as it gets. jonathan: you are an mv person. if your party has a majority in parliament, you have the majority. she is an mp. she is a member of parliament, she is asking questions, interventions, that is the system. tom: they are not ill thing a prime minister's library for theresa may -- building a prime minister's library for theresa may. continue, jon. i didn't mean to interrupt. jonathan: you didn't mean to interrupt. you never do. price action, single names. lisa: [laughter]

how is it going? i am keeping my eye on retailers, we are getting the last trips and grabs of this earnings season. american eagle pausing their cash quarterly dividend, shares down almost 15 percent ahead of the open. wayfair, seeing its shares declined nearly 10% after selling a six hundred million dollars convertible debt to concerns about dilution. gamestop, 7.5% gain ahead of the market opening. earnings were not great, they were soggy. it was a partnership with stx that got a lot of people's attention. elsewhere, looking at the pandemic darlings that have seen soggy post-pandemic forecasts. shares lower by point 25%. earnings after the bell, how low

can they go considering the fact they have declined about 60 percent so far this year, 80% the past 12 months. are they pricing everything they can get thrown at them? the bar is set too low, roku up a percent as they are upgraded on the potential for a more boast -- robust outlook. insignia shares popped after the release of the new iphone. they paused price hikes, they are offering it at the same price despite the inflation going forward. this is a interesting not to the competitive landscape as well as the deteriorating willingness of consumers to absorb everything. jonathan: getting headlines from the queen, the uk's queen elizabeth to remain under medical supervision. doctors are concerned for her health. those headlines dropping, that

is all we have so far. the queen to remain under medical supervision, doctors are concerned i her health --for her health. tom: a new photo of the fragile queen, right now, we move forward to the call of the summer, out of td securities. that would be three in missouri. the dovetail of that is the call of the last 12 months and 24 months, which is our colleague, mark mccormick. his resilient dollar call was brilliant in hindsight. he joins us this worn. are you still resilient dollar? mark: we like the dollar short term. we upgraded our forecast to 3% for here, i think there is slick weather whether we call it the japanese yen, most stock is going to come from europe --euro and sterling. tom: you've got on ideas, taiwan against korea.

swiss franc against japan. is there a point we cannot look at a more comfortable pairs we look at normally, and have to go to other currency pairs? mark: interesting is, things happening around the world are driving different factors to make different countries more valuable than others. in that context, the number one thing still driving everything in terms of trade. the energy shock. it is more important we look at oil prices for japan and electricity and natural gas markets in europe. in terms of trades are diverging, which would be beneficial for the yen over time, it is a drug for european currencies. asia, financial conditions are easing through china but tightening in europe and's lightning -- and slightly tightening in the u.s. what we are seeing is a -- for asian currencies to recover in the months ahead, even though we think dollar china should touch 710.

this is a complicated mix of valuation, divergence in terms of trade shocks. these are creating gyrations across different currencies. lisa: i want to set a point think you are making, perhaps the energy prices are more important to the outlook for currencies then rate calls by central banks around the world. this is something we have been talking about steadily. what are you looking or tomorrow from the energy finance ministers in europe, what kind of plan could give you confidence have seen the bottom for the euro? mark: i do not think there is a lot in the short term. if you look at the level lows of relative stocks, what is going on in the natural gas sector. the problem is, we need to watch the flow. if you look at stock levels, they are 80%, 90% for people to get confident about. we need to look at the changes in flow. even at 80%, 90%, that is only

good for 75% of one month in the winter. we are all forecasting the weather. the stimulus, the packaging, price caps, rationing are good for a longer-term story for the euro. next year, we are generally bullish. we do not think this is a full, long structural dollar cycle. i think what we are getting this confidence things recover your, but we need to get through the end of the fed tightening cycle and need confirmation inflation has peaked. we still need the global economy to recover. in the context of what we are expecting from the energy side, if fiscal stimulus is good but short term less demand --more demand and less supply on the energy market, real rates are going to move again, euro and sterling, for the next three to five months until q1 of next year. lisa: how much liquidity is there in these deep fx markets that traditionally have been very much a tell for so many

other markets? mark: i think there is depth and complexity, volumes are high and standards in currencies. where you lose some interest is when you look at norway, sweden, they are trading worse than emerging markets. if you look at the mexican peso, brazilian royale, they are trading off important, strong fundamentals that are an interesting backdrop. you would think the environment we are in now, u.s. equities are outperforming, if we look at how mexican peso has traded, it is trading at an interesting dynamic where global data prices are improving, people are interested in caring. when should we improve to market kerry? the traditional currencies people are watching are doing what they should, but it is some of the periphery ones, the -- and sweden, those currencies are

impossible to trade now. jonathan: if we get 50 or 75 from the ecb, what does the -- do? mark: we are expecting to be in the two, you either go 50, 50 from here or 50 and 75. we are expect 50 now and the terminal rate of two, euro is not going to like that. what we are anticipating, a short squeeze, euro looking for a move the next couple of months to $.96. jonathan: thank you, cristobal type stuff looking at the next year. ecb at 8:50 eastern time. a statement from buckingham palace moments ago, following further evaluation this morning, the doctors are concerned for her majesty's health and recommend she remains under medical supervision.

that statement follows news in the last 12 hours that the queen had to postpone a meeting with senior government officials yesterday after a full day of activities with boris johnson and liz truss. that is the latest from the palace this morning, moments ago. tom: we will have to watch it carefully, no question about it. jonathan: looking forward to catching up with guy johnson in five minutes from london, we will get an update of the queen's health. nasdaq 100, down .1 percent. in 40 minutes time, we will hear from the ecb. a coin toss between 50 basis points and 75. after that, you will hear from the president herself. halfway through the conference, you will hear from chairman powell.

a busy couple of hours on bloomberg tv and bloomberg radio. futures unchanged. live from new york, this is "bloomberg surveillance." lisa: the uk's new prime minister said there are no cost free energy --cost free options for the energy crisis. a sweeping package of measures to contain bills, that will cap the amount consumers pay for natural gas and electricity. that could cost the government up to $230 billion. officials say it will cut inflation by 5%. the ecb will join more than 40 central banks that are using outside rate hikes to fight inflation. the ecb is expected today to raise rates by .75%. the rate decision is due at 8:15

new york time. christine lagarde will speak afterwards. antony blinken has made an unannounced trip to ukraine, arrived in kyiv today with a meeting with ukrainian officials. it is his third trip there as the war with russia began in february. the pentagon has said -- sent ukraine artillery shells according to budget documents that show the u.s. military is spending $92 million to replenish its stock. it costs around one hundred thousand dollars. there is one major surprise at apple's latest project unveiling, one of the worst years of inflation in decades while the company is not raising prices. apple introduced the new iphone 14, new airpods earbuds and apple i watch. the iphone similar to the older version with an improved camera and satellite messaging feature. global news 24 hours a day, on

air and on "bloomberg quicktake." powered by more than 2,700 journalists and analysts in more than 120 countries. i am lisa mateo. this is bloomberg. ♪

jonathan: an update on the queens health from buckingham palace moments ago. a statement, following further evaluation this morning, queens doctors are concerned about the majesties health and remains --and recommends she remain under medical supervision. a response from the british prime minister, liz truss on twitter moments ago. the whole country will be concerned by the news from buckingham palace, my thoughts are with her majesty, the queen and her family at this time. tom: after the photo two days ago at saw of the queen greeting the prime minister and former

minister johnson, your thoughts on that photo? jonathan: a lot of people saw that photo and thought the queen looked frail. at 96 years old, not suppressing. guy johnson from london, how worried are we to get an update of this kind from the palace? guy: quite candid in some ways. normally, the language around the queens health is more opaque. i think this is relative to what we would normally get. they are concerned for her health. that should speak to the situation we find ourselves in. the queen has decided to stay at val moral, normally, she would've greeted liz truss at buckingham palace. that did not happen. she has postponed her meeting with senior ministers, she is clearly trying to -- her doctors

are making this clear she needs to rest. that is all we can say at this point. this is a candid comment from the doctors, very good doctors that look after her, the medical care is second to none. tom: help our worldwide audience with how prince charles responded to this news. obviously, a family. he was at her coronation as a young child. how does prince charles, prince of wales respond to this news? guy: you are asking the same question when prince philip died last year. i think the same answer holds true, that is that this is his mother. they are very close. as a result, i think that will be his first response. this is his mother. he be devastated that she is as frail as she is. they have had a close, working,

personal, family relationship and they are very close. obviously, i think that will be his first response. he will understand that he has a responsibility to the nation. that is where i think the response this time around it differs. this is the crown, this is the queen. this is him taking over that crown and becoming king. i think he will understand the weight of that and understand the responsibility that comes with it. i think it is a different response. primarily, this is his mother. it is the crown, it is the queen. he will become king. i think the response is different from prince charles this time around. lisa: queen elizabeth the second has been queen since she was 25 years old. she is now 90 six years old. she has invited winston churchill to be prime in a stir, and now, liz --prime minister,

and now, liz truss. can you put into perspective, given her popularity, what this means for a nation that has seen her as a leader through so many generations? guy: most people will not remember anything else. as a result of which, this is a huge wrench for the country. a massive wrench for the country. she has been front and center, a core of british life for so long that this will be a huge wrench. she has lived through and been monarch through a huge transformation in the uk's status in the world. coming out from the second world war, from sue s, from the turbulence of the seven seas, the 1960's and 1970's, she has been steadfast through that. she has been the rock on which the british system has been founded.

removing that keystone is huge, and will have a huge and profound effect on the way britain thinks about itself going forward. she has been central, she has been at the core of everything and to remove her from that position will be a major change for the united kingdom. jonathan: this is going to dominate the news flow for the united kingdom for the next 20 four hours and beyond if things develop. is anyone going to be talking about what the prime minister said in the last hour? guy: that is an interesting question. the conflict this winter is going to be difficult for the u.k. as a result, in some ways, what we are priming is not good. the u.k. has many challenges ahead. i think many people will be relieved liz truss has gotten this information out before these --this subsequent news

about the queen has developed. i think a lot of people in the u.k. will be breathing a sigh of relief that their energy bills will be really -- limited this winter and next, as well. allowing this news to come out as important, i think a lot of people will take this as a sigh of relief. i think a lot of people's attention will focus on what is happening at grand moral. jonathan: if you are just tuning in, this is the statement from the palace in the last 20 minutes following further evaluation this morning, the queens doctors are concerned for her majesties health and recommended she remain under medical supervision. she remains at mel harel, the scottish family home to the royal family. liz truss invited the former government by the queen, she had this to say. the whole company will be concerned from the news from

buckingham palace. my thoughts are with her majesty, the queen and her family at this time. as for her family, according to latest reports from the u.k., i understand prince charles and camilla are at mel harrell to be at the queen's side. tom: there'll be a lot of coverage on this. i think the tradition of the family, the house of windsor of being in scotland speaks volumes, this goes back to the queens mother. i would suggest, the comfort there versus the drafty halls of buckingham palace tends to be paramount. jonathan: gearing up in a couple of hours on financial markets. ecb rate decision about 20 minutes away. after that, you will hear from the chairman of the federal serve, jay powell. he is going to have his own address later, at the same time

president lagarde is delivering a news conference. here is the plan. get that decision at 8:15 eastern time. 30 minute later, a news conference with president lagarde. then, we hear from chairman powell. tom: i have been at the cato institute where the chairman shows up, it is a different thing tank. there should be different comments there. jonathan: futures unchanged on the s&p five hundred. live from new york city, good

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>> i think what is going on in europe is confusing. >> globally, you can see economies all around the world are slowing down. >> the u.s. economy is in a much better spot then europe.

>> it is not the safe haven of choice by default--it is the safe haven of choice by default. >> in europe, we will see 70 five basis points, probably tightening by the ecb. >> this is "bloomberg surveillance." tom: good morning. an extraordinarily busy day with an ecb decision in 15 minutes. the queens illness noted in scotland. we focus on christine lagarde, 50 basis points or 75? jonathan: if it is 50 or 75, we will ask the same question. facing the real potential of going into a recession, can they keep hiking into that when a lot of this comes down to the price of gas. tom: there is a fractured europe at the moment, which country are you going to follow most as we see the press conference and the

nuances of it? jonathan: within the executive board, it is a split. it looks like a split between the chief economist of the executive board and --, -- seems to be keen on front loading, going hard and being decisive. philip lane is taking a delicate approach. i wonder how that could take shape in this news conference when president lagarde has to try and represent some form of consensus on the committee. tom: it goes back to the carriage it -- heritage of the ecb. schnabel is a name many of our listeners and viewers do not know, she was a force in jackson hole. jonathan: one of the best communicators of the european central bank, we can all agree. the difference between the ecc b and ecb under draghi is the will, the hawks are in charge and there has been a major change under lagarde.

there has been a big change because inflation has seen a massive change in europe the last year. tom: in charge is the price of this currency or that, and the currency of this war just hydrocarbon. west texas intermediate nearing $79 per barrel. lisa: the push poll of demand destruction with supply destruction with the idea of constraints from the war, the idea that opec-plus marginally reduced supply targets in response to the demand versus destruction, which takes center stage and how do you demand --achieve demand destruction if you are supporting household expenses that has to deal with energy? tom: dollar takes a break. data check so we can get to alessio to log us, 12 minutes from the ecb decision. maria tadeo in frankfurt at this hour. brent crude, 88.41, distant from $120 panic from weeks ago. jonathan: she takes months off

and comes back for the ecb decision. you want to take a month off, tom? nasdaq 100, print unchanged -- brent unchanged. euro-dollar unchanged, parody up.1% on parity. big turnaround in crude yesterday, up .6%. wti, 82.46. tom: we want to get somebody a student before this announcement, alessio joins us, head of gta a solutions. what is the nuance of the 8:1 5 announcement? >> in my opinion, the headline is about the 75 versus --

tom: nothing really matters. >> we are in a position where the ecb has to keep up with the pace tightening helping -- happening elsewhere. it becomes a currency war game potentially, going either way. if the ecb does not deliver 75, the weakness in europe and other currencies will make -- weekend other policy tightening efforts. it does matter when your problem is inflation on the energy front, which is priced in dollars. the ecb needs to deliver 70 five basis points to stay on par with the hawkish rhetoric of the fed and thanks of england. that is what matters. to your earlier discussion, i think there is an opportunity for the doves to concede. at the moment, with where inflation is, there is no argument to be had. the doves might have the upper

hand to say, two quarters from now, when further hikes are far more challenging, when growth will be weaker. jonathan: let's talk about the forecast. we should get the news conference from president lagarde, is the central bank prepared to forecast a recession? alessio: great question. i think they will probably shy away of a negative gdp growth in 2023, but it will close to zero, maybe south of 0.5%. what i think it will do is show that even out in 2024, both headline end quarter will be at or above two, which is a big concession. i think that is the most important metric at the moment. lisa: right now, we are looking at, with respect to the doves possibly taking more control in a couple of quarters, does that make you potentially bullish on certain european assets down the line, because you could see that pivot first by the ecb? alessio: the timing on that is

particular. we are at that inflection point, maybe in a couple of quarters or in a year, we are at those extreme valuations relative to u.s. assets on basically every asset class. let's not get started on relative equity performance. when you get rate differentials on the short end and long end, very extreme spreads. on the euro, the conditions for the euro to continue weakening are in place even with a 70 five basis points, regardless of what will happen today. we have those two forces supporting the dollar, global growth disappointing below consensus is dollar positive. yield differentials on a rate of change basis on a level support the dollar in a incredible way. that pivot, when we are at the last steps of these tightening cycles, that pivot will be powerful. the next recovery, which could be less then a year away, will

be led by non-us assets, by euro. lisa: right now, people are piling into the dollar and continuing to move away from all non-us assets. how violent will this shift be and what will the catalyst be? how do you get ahead of it when it is hard to predict what president putin will do, with chinese lockdowns, etc.? alessio: we know that currency valuations in particular can overshoot and under shoot fundamentals. i do not want to draw a direct analogy with the -- of 19 80 five, but we are potentially in a situation where momentum in favor of the dollar, because there is no alternative, because of the geopolitical risk, becomes so strong that some form of intervention, will have to take place. that happened in 2000, 2001, when the dollar was at incredible strength and we had

this similar rotation, this dominance from u.s. assets into the following phase, which was not u.s. assets lead. i think some level of u.s. policy coordination will have to take place if we continue with this trend. jonathan: i struggle with this, because the treasury, the sped needs a strong currency. if japan needs one, they can do something about it themselves tomorrow. alessio: true. every country, this is the paradox, currency wars are in reverse. everybody needs a stronger currency to deal with inflation problem. the challenge, yes, japan's ecb has intervened. the challenge is frowned upon. there is this gentleman's agreement, that meaningful currency coordinations have to be discussed. we do not want to go back to that environment in 2010, 2

013, when we were doing competitive devaluations. in this case, we will be doing competitive appreciation's of those currencies. jonathan: wonderful to catch up. any policy decision involves a trade-off. japan has decided that it is more important to maintain the cap in its bond market at j pg. the consequence is a much weaker currency. if they believe the trade-off is not worth the squeeze, tomorrow morning, they can do something about it. if they remove the cap and the boj did that, what do you think would happen to jgb, japanese yen immediately? u.s. policy maker in a treasury right now, you hear japan complaining about the currency being too weak what are you going to do? don't you call them back and say, we are doing what we are doing, why don't you do something about it if you want to.

tom: there is nominal gdp, what is actually earned, and you take away the inflation component. you have real gdp, or inflation-adjusted gdp. each culture in society worries about one or three of those, the weightings very. it is a debate out there. japan is fixated on constructing and inflation, of avoiding deflation. they do that at the expense of nominal gdp. the answer is a zombie economy. jonathan: at the expense of weaker currency. lisa: that is why the currency has responded to verbal intervention. this isn't going to work, we are not going to blink because you say, we do not like it. jonathan: in the last currency war, i remember the authorities in new zealand talked about turning up to a war with ap shooter. you got to face the fact, japan

has its own bazooka. the outcome is, a weaker currency. ecb rate decision about four minutes away. we will break that down for you. this is bloomberg. ♪ lisa: economists surveyed by bloomberg are correct, the ecb will join more than 40 central banks to fight inflation. the ecb is expected to raise rates today by three quarters of a percentage point. the rate incision is due in a few minutes from now. ecb president christine lagarde will speak afterwards. u.k.'s new prime minister says there are no cost free options to resolve the global energy crisis. today, liz truss unveiled a new package of measures to contain

energy bills. it will cap the amount consumers pay for natural gas and electricity, by one estimate that could cost the government up to $230 billion. doctors for queen elizabeth they are concerned for her health. a statement from buckingham palace says the british monarch's comforter -- is comfortable at balmoral castle. she was seen earlier this week meeting with the new prime minister. president biden is holding back on a decision to scrap trump era tariffs on china imports. earlier this summer, the president had signed off on a new exclusion process for tariffs on manufacturing materials from china. bloomberg has learned the administration is studying ways to seek relief. global news 24 hours a day, on air and on "bloomberg quicktake." powered by more than 2,700 journalists and analysts in more than 120 countries. i am lisa mateo.

this is bloomberg. ♪ >> when you look at europe, the u.s. is in a much better spot. in relative terms, yes, it is hard to make the case of europe over the u.s. in any form right now. jonathan: going into an ecb rate decision, that is one minute away with tom keene and lisa abramowicz. futures positive point 1% on the s&p 500. nasdaq one hundred, unchanged. euro-dollar, 1.0018. tom: the dynamic is, the outlier. italy, it will be interesting to see how italy paper moves. jonathan: that spread going into

this decision, about --basis. 50 or 70 five, 30 seconds away. lisa: and, whether or not it is going to matter. the consensus is, 70 five can it stick with what the ecb does with the? energy problems jonathan: we are not talking about a recession in europe, it is not there yet. will the ecb forecast one in that news conference in 30 minutes? lisa: if they don't, what does that mean for their credibility when everybody else seems to be forecasting one? jonathan: we are looking at 70 five, most people seem to think it is a coin toss between 50 and 75. there it is, 75 basis points from the ecb. marginal lending facility goes to 150.

main refinancing rate goes to125. that is a75 basis point hike from the ecb. reaction on euro-dollar, slightly positive by point one percent. euro-dollar, 1.0018. euro spread between europe and germany, 220. it is 75. lisa: the question is, what do they signal going forward? people are already pricing in another 75 through the end of the year. how much do they buffer this with recognition of the pain that is confirmed on the euro region as a result of higher energy prices, as well as the fact that negative yields, zero rates has evaporated? jonathan: looking ahead, the ecb staff has revised their inflation projections. inflation expected to average 8.1% in 2022.

5% in 2023. 2% in 2024. recent data points to a substantial slowdown in euro area economic growth with the economy expected to stagnate later in the year and first quarter of 2023. they say, very high energy prices are reducing the purchasing power of people's incomes and supply bottlenecks easing, they are constraining economic activity and adverse geopolitical situation, russia's aggression toward ukraine, is weighing on the confidence of business and consumers. the outlook is reflected in the latest staff projections for economic growth, revised down for the current year and throughout 2023. i can give you the outlook now, they look for the economy to grow by 3.1% in 2022. 1.9% in 2024. 75 basis point hike today.

they are not forecasting a recession. they are going to go meeting by meeting. if you get any criticism of the decision today, it might not be on the policy call, it might be on the forecast. these forecasts are for growth, not for a recession. tom: they are political, you have to remember there is no statement on a war in ukraine, which has more to this. i love the elegance of getting away from data dependency, forward guidance where they just gracefully say, there will be a meeting by meeting approach. they do it or elegantly than they do in ask centric washington. jonathan: i believe we've got maria tadeo standing by. tom: who? jonathan: it has been a wild. we have got news to cover. cover the news headlines. maria: 75 basis points was the obvious choice, but not a given. the debate around 75 or 50 basis

points has heated up in the days prior. some governing council were concerned about the idea of a full-blown energy crisis, potentially hiking aggressively in the face of potentially a recession, which they do not refer to. they talk about inflation. to me, it shows the hawks have it. it is the hawks that control the governing council now. they feel at this point, the recent wage hike, the credibility is on the line. you have to take decisive action. tom: who are the hawks, besides the obvious boon bank and the people of germany -- bundes bank and the people of germany? maria: it is the dutch, the austrians, you have to find at the press conference whether this was unanimous or not. there could be a surprise where some governing councils who

usually may be on the dovish side, if you get to december and that recession does manifest or this big energy crisis, you should not be hiking at that point. this may be a question about frontloading, you have that window. the other key takeaway will be any references to italy, we talk about germany. italy is also exposed to that energy story, but has a change in government. it is unclear what that is going to look like. lisa: what does it do for ecb credibility, the fact they do not forecast recession, they do forecast growth? maria: when you look at this outside of the european union, it probably seems deluded, stupid that they are not operating in a reality many investors are. when i talk to european officials, they repeat one thing. there is two scenarios, one is the most stress and which you enter a recession, in which

there is a serious energy crisis, in which you enter into serious problems with the economy. they say there could be a less stressful scenario, what you do not have a cold winter, you do see demand while --demand going down, people switch things up because they do not want to pay for a hefty deal. there is potentially to come tomorrow, measures from the european commission which could help. they talk about liquidity for companies, intervening in the markets to make a separation between gas and electricity. they are all advanced on the storage story. for any european officials, they do believe there could be a scenario where they are able by a stretch to get through the winter without a recession. jonathan: i could take the opportunity now, we missed you. it is good to have you back. it is 70 five, going back to this news conference, euro weaker, 99.94. tom: it is a different 70 five basis points in your.

i would suggest, i defer to you with your years of experience at frankfurt. this is an easing left for them. the next lift will be far more profound. jonathan: it gets harder and harder, especially if the economy growth does not evolve in the way they anticipate. they are talking about maybe things dropping off to stagnation, let's face it. we are talking about more than that in europe. we are talking about recession. tom: futures flat in america. dxy under a 110 level, weaker dollar. huge blinking on the bloomberg terminal. it is real simple, what is the closest attribute or thing that matters to the ecb after this announcement? is it gdp, the price of hydrocarbons, what mr. putin does? what is the variable that matters for lagarde? >> the ecb mandated, it is quite

clear. the value of inflation. strictly speaking, it should be the output for price of inflation. to date, you have two interesting things. we highlighted the 75 basis point hike us frontloading. secondly, reiterating that meeting by meeting approach. in my view, given the fact inflation is running at 9% currently, way above the ecb's target, which is under 2%, it does not give me confidence that inflation is taking priority over everything us. in that, i think that is the big takeaway from the statements. you will see what the price conference is, there is an enormous weight on the growth

outlook. that way, it will eventually go up or down, depending on, we will find out. this is not the central bank that communicates that inflation is a top priority, as it should be. we will find it and keep it, like the fed said. lisa: do you expect the euro to decline more significantly versus the dollar, because you believe will timidly be the message from this rate decision? >> i think today's statement so far, i do not think exposes support of your. the elephant in the room is global growth. and the euro. global growth remains muted. very weak, not as low as china, meaning increases will not

bailout global growth. it is very unlikely that euro is going to -- long story short, yes. jonathan: great to catch up on the back of this ecb decision. so much more to discuss with you over time. 75 from the ecb. in 20 minutes, we hear from the president of the central bank, christine lagarde. shortly after, we hear from chairman powell. at about 8:45 eastern, that news conference will begin. we will take that for you. when chair powell talks at 9:00 eastern time, we will take that for you. futures up on the s&p 500. on the nasdaq one hundred, unchanged. tom: this is where you go to euro sterling, euro-yen and others to see what the real tip point is. it is off euro-yen, a fraction of a move we see on euro.

jonathan: frontloaded, 75. what is next? lisa: frontloading, meaning they are going to stop and pause sooner rather than later. are they going to reverse course and have a powerful rally in a couple months time? jonathan: remember when we used to call the forecast from the fed aspirational? you see those gdp forecasts are aspirational. lisa: that is what we just heard about the idea they are not prioritizing inflation over all else, there is a growth component. jonathan: next, a meeting from faron berg. this is bloomberg. ♪

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jonathan: live from new york city. futures positive on the s&p 500. 2% on the nasdaq 100, negative5. we will hear from president christine lagarde in about 15 minutes, then chairman powell. michael: we have a very small

change in dog --jobless claims. they go down to hundred 20,000, a decrease of 6000 from the previous week level, revised to 222,000. revised down from 222, 000 to 228,000. people are still getting jobs, that is the good news in the united states. it pales in comparison to what is going on the rest of the world. it does push back against the gloom. latest economic data in the u.s. has been relatively good. the fed has been more hawkish, unitary release so, the last week, which is why the focus has been 70 five basis points.

we will have to see what chairman powell has to say. jonathan: fuel for those hawks. tom: four weeks in a row, down. takes us back to early summer. where is the level in your head were michael mckee goes, oh. michael: i do not know there is a level. we are in a unique environment, there are so many job openings at this point, it would be a continuing rise that did not show signs of peaking that would start to get peoples attention. this is a signal, i know things are relatively good as far as corporations are concerned. lisa: what is the threshold for them to avoid the 75 basis point hike, at a time when everyone else has gone hawkish and a summer of 75? michael: the ecb, the most surprising thing in their announcement was, they do not see a recession and everyone else seems to. if they do not see a recession and are going 75, what is the

fed going to do? i think 75 is baked in, even if we get a decline in the cpi next week, which is forecast on a month over month basis. cpi tuesday. if we get that, that is still probably going to be 75. jonathan: he said it, tk. michael: as jim bullard says, if you want to get somewhere, get somewhere faster. tom: frontloading wednesday. jonathan: what is thursday, tom? lisa: cpi. jobless claims. jonathan: nasdaq, down point two percent. euro-dollar, we are at parity, positive .1%. tom: in america, terrific news flow. these are serious matters, in

particular with the war in ukraine pushed up against all the other conversations. the conversations of europe are complex, now we go to the chief economist of baron berg. careful conversation on these moments. what will you listen for from christine lagarde after she has decided there is no procession ahead? >> i will listen to three things. what does she say about the future path of interest rates? does she go by this meeting by meeting approach? any inkling of the next move will be 50 or 70 five, that is the one key thing. another explanation as to why they do not see a recession, we expect a significant recession in the coming months. any comments on quantitative tightening --in the future, or

what do they think about current yield levels. are they anywhere close to this new intervention program in favor of italy? tom: what is the power of the number of the bundesbank culture going back to world war ii, to the reformation of europe coming out of world war ii? what is the germanic power at the ecb this morning? >> the hawkish viewpoint on rates did very. i would not call it germanic power. we have seen a surge in inflation, the european central bank, like the u.s. fed, has decided it needs to be seen as fighting inflation. this was a consensus, i suppose,

a unanimous consensus that the ecb and council needs to do significant -- something significant. the point -- quid pro quo statement --of tightening, that is something the government might have gotten, press conference out of any of it. jonathan: would you call it frontloading or incredibly delayed? >> this is from loading relative to ecb standards. many indicators suggest the economy is heading not just or inflation, but a recession, which over time, which causes inflationary pressures. jonathan: a lot of journalists listening to your response. the president in this forecast --this conference, why isn't she forecasting a recession? >> that is a good question.

i am sure one of your colleagues will pose that question at the news conference. why is it that the ecb, specifically with the forecast, they have been --forecast after forecast, -- secondly, they may be under the impression of the data from the second quarter and what was in europe over the summit. if we hang in in q3, despite bad news about energy, that risk is rising, rather than falling. that should be stagflation rather than a recession. lisa: that is the benefit of the

doubt version of things. when you get the dutch take on it, which made it bearish on the euro, it highlights how this is an ecb that is still prioritizing growth in tandem with fighting inflation, which makes it concerned. do you get the same message from the fact they did not forecast recession, they are still forecasting growth, despite higher rates and despite the incredible economic pain facing the region? >> i do not get that discretion. i would focus on the 75 basis points. the ecb has vowed to raise rates further. i do not think this decision today exhibits hesitancy on doing what it takes to rein in inflation. the question is, whether there

is anything the ecb can do to have a significant impact on inflation as european inflation, unlike u.s. inflation, is -- putin's of ukraine, high prices for oil, gas and electricity. it is the result of excessive wage pressure. lisa: is there a pivot point threshold you are looking for, is there a point of pain in the economy that might be big enough for the ecb to reverse course? >> the ecb probably will reverse course. i think that comes at the beginning of next year, with the fourth quarter having being significantly negative and likely to be the first quarter of next year, recession will remain deep, then the ecb will likely raise rates, 2% by

december, a chance a bit above that. next year, with the economy quite sycophant -- significantly in a recession, next her, i think the ecb will stay unless a recession, and inflation do the job of bringing energy inflation down over the course of next year. tom: christine lagarde, the difference between brent crude and natural gas. what is baron berg's research on a separation of a much better statistic for a barrel of brent crude versus the agony of what we see in natural gas right now? >> these various sources of energy are disconnected in the sense that brent crude is one latent element of one largely global market of crude oil.

in the global market, we have seen a bit of price easing for oil, and response to a recession. whereas, gas prices are extremely volatile, can europe make it through the went to or not, we are currently optimistic europe can make it through the winter without having to raise gas, but the price for that is, the storage facilities -- we are paying through the nose for it. natural gas, and to some extent, electricity, prepare for winter at any cost. jonathan: thank you. it is important to get your perspective going into that news conference, following that monetary policy decision. the news conference is about four minutes away. we will hear from president

lagarde of the european central bank. at about 9:10, you will hear from chairman powell. we will take the news conference, then eventually shift towards chairman powell. that is 30 minutes after we heard from the ecb, they delivered a 75 basis rate hike and signaled there may be more to come. here is the outlook for inflation from the ecb. i will quote the governing council directly. as the current drivers of inflation stayed over time and the normalization of monetary policy works its way through the economy, inflation will come down. here is the but, looking ahead, the ecb has revised up their inflation projections and inflation is expected to average 8.1% in 2022, 5.5% in 3023, and 2.5% in 2024.

are they aspirational forecasts, considering they forecast the icd growth not including recession? recent data points with substantial slowdown in europe's economic growth, with the economy expected to setback later in the year in the first quarter of 2023. with supply bottlenecks easing, they are constraining economic activity. the forecast from the staff of the ecb look like this, they expect the economy to grow by 3.1% in 2022. 0.9% in 2023. 1.9% in 2024. i imagine those rows forecasts will be questioned in the news conference. frankfurt, right outside the news conference, is maria tadeo. where will the line of questioning begin with this ecb president?

maria: you alluded to this, it isn't too optimistic. we are entering a winter potentially for some that looks almost apocalyptic for the european economy. this goes back to what i mentioned earlier, there is still officials in frankfurt and brussels who believe they can avoid that recession scenario, who think we have not played our cards. we can deal with the gas situation, put it cap on it. we can separate electricity to demand destruction. that will be key, and for 10%. if that happens, perhaps they are able to wing it. they talked about liquidity problems, fiscal support. a lot of this coming together could mean by a stretch, they are able to get through this winter without a recession. a lot of this will depend on something christine lagarde, to not control. the weather, is it going to be a cold winter, a mild winter?

you can call this wishful thinking, you can blame investors for saying this is wishful thinking. before, there was an option on the table, they do not want to top down the economy further. jonathan: that news conference with president lagarde starting imminently in frankfurt. when it begins, we will head over to it. do you think it is aspirational? are those forecasts laughable for the european economy? maria: -- lisa: a lot of people would say yes, they are laughable to assume there will not be a recession as the base case, even if you hike rates into weakening growth, given the fact they are projecting inflation rates miles away from where the central bank used to see them. interesting to see how they explain that. jonathan: you have seen a lot of decisions over the years. what do you make of this decision and these forecasts? tom: the decision is a backdrop behind their economic length of productivity, given the

uncertainty of a war. as i said earlier, to me, the decision is, the fed is searching in the gloom. maybe we will see that at the cato institute today, towards some form of, we are there. i do not think we have a clue of where there is for the ecb. jonathan: to be fair for this ecb and the leadership from the european central bank, so much of this is out of their control. gas prices, a war, a polity -- policy decision out of their hands. it is up to decide what to do. we will get something different from germany, italy. can we get a big agreement from the european level to do something? so many of these things that have huge implications are out of their hands. lisa: this is a difficult decision for the ecb, which is why i am wondering whether tomorrow's meeting of the finance ministers, energy finance ministers in a europe,

is going to be more important for markets in this rate decision. now, the ecb is looking at the same mess the rest of us are. jonathan: when you look at the outlook for the ecb right now, i am less interested in their forecast and more interested in the price of gas next year. imagine how much more confident they would be about what they have to do. lisa: they project they are going to get some, or would it be the opposite. you have to think about the pain required to do this. you see this in the u.k., the reality over there, why is it not being reflected by any other central bank, even though other banks are basing the same outlook? jonathan: we are heading to the ecb chief right now, let's listen in. >> today, vice presidents advice, i welcome you to our press conference. the governing council today decided to raise the three key ecb interest rates by 75 basis points.

this major set front loads, the transition from the prevailing, highly commodities level of policy rates towards levels that could ensure the timely reserve of inflation to a 2% medium-term target. based on our current assessment, over the next several meetings, we expect to raise interest rates further to dampen demand and guard against the risk of consistent, upward shift in inflation expectations. we will regularly reevaluate our policy part, in light of incoming information and the involving inflation outlook. our future policy rate decisions will continue to be data-dependent and follow a meeting by meeting approach. we took to tase --today's decision and expect to raise inflation rates further, inflation remains far too high

and is likely to stay above our target for an extended period. according to euro stats, estimates, inflation reached 9.5% in august. during inflation and food prices, demand pressures in some sectors going to the reopening of the economy and supply bottlenecks of still driving up inflation. price pressures have continued to strengthen and broaden across the economy, and inflation may arise further in the near term. as the current drivers of inflation fade over time and the normalization of our monetary policy works its way through the economy and price setting, inflation will come down. looking ahead, ecb staff has significantly revised up there inflation projections, and

inflation is now expected to average 8.1% in 2022, 5.5% in 2023, and -- in 2024. recent data points to substantial slowdowns in euro area economy growth, with the economy expected to stagnate later in the year and in the first quarter of 2023. very high energy prices are reducing purchasing power of people's incomes, and although supply bottlenecks are easing, they are still constraining economic activity. in addition, the adverse geopolitical situation, especially russia's unjustified aggression towards ukraine, is waning on the confidence of businesses and consumers. this outlook is reflected in the

latest staff projections for economic growth, which have been revised down markedly for the remainder of the current year, and throughout 2023. staff now expects the economy to grow by 3.1% in 2022, 0.9% in 2023, and 1.9% in 2024. the last --in their abilities caused by the pandemic, deals with the risks of the smooth transition of our monetary policy. the governing council will continue applying flexibility in reinvesting redemptions coming due in the pandemic emergency purchase program portfolio, with a view to countering risk to the transmission mechanism related to the pandemic. they decision is taking out --the decisions taken out today are set out in a press release available on our website. a separate technical press release on the remuneration of

government deposits will be published at 3:45. i will now --in more detail how we see the economy and inflation developing, and's plane assessment of financial and monetary conditions. the euro area economy grew by 0.8% in the second quarter of 2022, mainly going to strong consumer spending on contact intensive services as a result of the listing of pandemic related restrictions. over the summer, as people traveled more, countries with large tourism sectors benefited especially. at the same time, businesses suffered from high energy costs and continued supply bottlenecks, although the latter has been gradually easing.

while buoyant tourism has been supporting economic growth ring the third quarter, we expect the economy to slow down substantially over the remainder of this year. there are four main reasons behind this. first, high inflation is dampening spending and production throughout the economy. these headwinds are reinforced by gas supply disruptions. second, the strong rebound in demand for services that came with the reopening of the economy will lose steam in the coming months. third, the weakening and global demand, also in the context of tighter monetary policy in major economies and be worsening terms of trade, will mean less support for the euro area economy. fourth, and third and few remains high and confidence

and's --is falling sharply. at the same time, the labor market has remained robust, supporting economic activity. employment increased by more than 600,000 people in the second quarter of 2022. the unemployment rate stood at hey -- a historical low of 6% in july. total hours worked increased further by point 6% in the second quarter of 2022, and have surpassed their pre-pandemic levels. looking ahead, the thriving economy is likely to lead in an increase in the unappointed rate. fiscal support measures to cushion the support of higher energy prices should be temporary and targeted. at the most vulnerable households and firms, to limit the risk of feeling inflationary

pressures, to enhance the efficiency of public spending and preserve their sustainability. structural policies should aim at raising the euro area's growth potential, and supporting its resilience. inflation rose further, to 9.1% in august. energy price inflation remained extremely elevated at 38.3%, this was the dominant component of overall inflation. market-based indicators --suggest in the near term, oil prices were moderate, while wholesale gas prices will stay extraordinarily high. food price inflation also rose in august two 10.6%, partly reflecting higher input costs related to energy, disruptions

of trade in food commodities, and adverse weather conditions. while supply bottlenecks have been easing, these continue to gradually feed through to consumer prices and are putting upward pressure on inflation, as is recovering demand in the surge of the sector. the depreciation of the euro has added to the build above inflationary pressures. price pressures are spreading across more and more sectors, in part, going to the impact of higher energy costs across the whole economy. accordingly, measures of underlying inflation remain at elevated levels, and the latest staff projections, inflation excluding food and energy, reaching3.9% in 2022, 3.4% in 2023, and 2.% in 2024.

resilient labor markets and some catch up to compensate for higher inflation are likely to support growth in wages. at the same time, incoming data and recent wage agreements indicate that wage dynamics remain contained overall. most measures of stronger term inflation expectations currently stand at around 2%, although recent robust target revisions some indicators warned continued monetary. let's turn to our risk assessment now. in the context of the slowing global economy, risk to growth are primarily on the downside, in particular, in the near term. as reflected in the downside scenario in the stark --stock projections, a long-lasting war

in ukraine remains a significant risk to growth, especially firms and households face rationing of energy supplies. in such a situation, confidence could deteriorate further, and supply-side constraints could worsen again. energy and food costs, for those who remain consistently higher than expected. the further deterioration in the global economic outlook could be an additional drag on euro area external demand. the risks to the inflation outlook are primarily on the upside. in the same way as for growth, the major risk in the short-term is a further disruption of energy supplies. over the medium term, inflation may turn out to be higher than expected because of the

persistent worsening of the production capacity of the euro area economy, further increases in energy food prices, a rise in inflation expectations about our target, or higher than anticipated wage rises. however, if energy costs were to decline or demand were to weaken over the medium term, it would lower pressures on prices. let's look at the financial and monetary conditions. market interest rates have increased in anticipation of further monetary policy normalization in response to the inflation outlook. credit to firms has become more expensive over recent months, and bank lending rates for households last at the highest levels in more than four years. in terms of volumes, bank lending to firms has so far remained strong, in part

reflecting the need to finance high production costs and inventory building. mortgage lending to households is moderating because of tightening credit standards, rising borrowing costs, and week consumer confidence. we have raised the three key ecb interest rates by 75 basis points today and expect to raise interest rates further because inflation remains far too high is likely to stay above our target for extended period. this front lows the transition from the accommodative level of policy rate toward levels the will support the timely return of inflation to our 2% medium-term target. our future policy rate decision will