tv Bloomberg Surveillance Bloomberg October 28, 2021 8:00am-9:00am EDT
>> these expectations for rate hikes for the fed, they are pretty seriously overcooked. >> it does seem like the economic cycle is moving at warp speed. >> it is either going to be higher inflation for longer than what is priced in or it is going to be a fed that has to catch up. >> bottom line is, you can't expect to turn off the global economy and then just ramp back up overnight. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. lisa: the uncertain passed to a new normal. good morning. this is "bloomberg surveillance"
on bloomberg radio come on bloomberg television. jonathan ferro on a well-deserved day off. i am not going to call it a sabbatical. kailey leinz in the caterpillar seat, driving this morning. i really do look at the fact that central banks are in the hot seat as they try to gauge higher inflation at a time of slower growth. tom: lagarde has a lot to address. the headline just breaking across bloomberg on german inflation coming in a little bit above. that is a ginormous number come out to 4.6%. then you've got the key statement i see within all of the mumbo-jumbo of the ecb that ferro's expert on. i don't know why he doesn't. rates at the present lower-level lower level out there somewhere. linda ronstadt song come out there somewhere. lisa: basically, the market is pricing the sin. keep singing, tom.
we are going back to a normal of low inflation, and this is what is supporting risk assets. the irony of a bond market that has a bearish outlook on the future actually edifying we are seeing in stocks. tom: this is perfectly framed. a red headline on the bloomberg of 4.6% german inflation, and out there somewhere is to percent inflation, according to the ecb. kailey: and the ecb is looking for it on a sustained basis. they are not going to move on policy until they get around that stable to percent inflation target. we heard it again with the headlines coming out of the ecb, moderately above target for a transitory period. my question is really going to be how christine lagarde navigates this in the press conference. what is her tone like? how does she push back on what we have been seeing in the bond market, the pulling forward of hike expectations? the market says in 2020 two year, the ecb is going to be 20 basis points higher than we are
right now. how does christine lagarde pushback on that idea? lisa: this is the conundrum for central bankers. you've got a recovering world, companies that are passing it along and are doing fantastically, even in europe. then you have these economic projections that really fly in the face of that. how do you message that an thread that needle? kailey: i think it is going to be difficult for christine lagarde because she is working without dated inflation forecasts. we won't get revisions to the forecast until december, so how does she navigate that messaging before that september meeting? mark: data here -- tom: data here in 27 minutes. thrilled you're with us on radio and television this morning. futures elevated, now more elevated. futures up 12, dow futures up 55. the vix, i've got a 16.73 vix. in the bond market, we have seen a move off of easy ecb
announcements forget the anticipation of what lagarde will say in 26 minutes. that is, from a 0.552 80.532 year yields. that a sharp curve flattening, a little less than what we saw -- from a 0.55% to a 0.53 percent two-year yield. joining us is leverage. how do we look at gdp at 8:30? lee: when it comes to gdp, sadly it is half empty. i think this was meant to be the big reopening phase. q3 expectations at the start of this quarter, this was going to be a 7% quarter as things really got back onstream. now we are looking at a meeting of 2.5%, atlanta fed saying 0.5%, which i think is on the low side. even so, it is a far cry from
where the expectations were at the start of this quarter. it really shows what delta has done and the supply-side constraints, what they have done to activity. tom: are we at a point, and i think of fidelity years ago, where all that matters is domestic final sales? country to country, here talking about the u.s., we see the export/import mystery and the china mystery so great that all we can fall back on is u.s. domestic final sales? lee: i think that is a fair point. at the moment, we are trying to gauge the strength of the domestic economy with supply chains, with all of the stuff at the ports, with everything else going on. the sort of external sector of the economy is something we can control. so yes, i think there is a valid point that we should be looking at final sales to domestics, and that is a better gauge of where
we are in terms of the bigger picture in the reopening. the other stuff, there are so many moving parts right now. in the global economy and the u.s., it is hard to really gauge where we are. i don't think we get a clear picture until next year perhaps, to be honest with you. lisa: who is glass half-empty? stocks are hitting new highs. bonds are doing all right. who has it wrong with how bearish they are in terms of u.s. growth? lee: you are assuming there is a relationship between asset prices in the real economy. surely that broke years ago. [laughter] lisa: ok, well said. carry on. lee: low growth now, more support from policy. you know, you talked about it at the top of the show, about how much is getting priced and in europe and in the u.s. as well. we have two hikes priced in now for the u.s. after this round of
tightening in the market over the last week or two. so weaker data actually pushes out that scenario, and we know that policy has been a big driver of asset prices. lisa: hold on a second. this is really key. are you saying we are still in an environment where bad news is good news in terms of markets? lee: yes, the longer we get the policy support, the better for markets. as long as the economy is not going into recession or disastrous, but if we are going on the right path but at a slower pace, which means the policy support persists for longer, still positive for markets overall because of more policy support. kailey: what you are seeing in the bond market is the anticipation that policy support will not persist for longer. it has already started in some places. the equity market is still resilient. is that not a mismatch? lee: yes, there's no doubt
there's a lot of mismatches going on at the moment. fact is, look at the curve shapes though. we have brought forward these rate hikes come but if you look at the longer end, yields have actually dropped back down, so we are seeing this massive curve flattening. so we are sort of, but actually, when we look at policy over the long term, we expect it to stay easy. kailey: let's talk about that curve flattening. right now, 75 basis points between the two. has that been overdone? lee: yes, i think it is more to do with the short end. the rates going up is the bigger issue. i don't think central bank's are going to act as hawkishly as anywhere near where the market is projecting, particularly the sort of g3. the exports we saw out of the bank of canada, yes, they can be more aggressive. they are getting headwinds from
commodity prices. but generally in the g economies3 -- the g3 economies, i think it has been overdone. tom: very good. leaf average -- lee ferridge, greatly appreciate it. i really want to focus right now on the u.s. data. claims has been my most elegant chart. it's got a wonderful vector towards somewhere out there, a fully employed america. and the first look at q3 gdp is a set of mysteries. lisa: a set of mysteries is a good way to put it, especially with the atlanta fed gdp coming out at subzero .2% growth. what does this mean? -- at sub-0.2% growth.
what does this mean? what is the reaction if there is a complete divorce between the markets on the economy? i am trying to wrap my head around that. i am struggling here. tom: the struggle i have is the technology of america. look for our coverage of 4:00 p.m. on these important tech earnings. after microsoft, after google, and sorry, the prism at 4:00 p.m. is different. kailey: it will be all about the cloud for amazon because amazon and microsoft are the major players. microsoft's results were so strong. does that bode well for amazon, or mean they were actually taking some market share? with amazon as well, we have to consider, while we are talking about supply-side issues, the labor pressures that amazon is facing. the issues for apple are really going to be more about can they get enough devices to meet demand. if you don't have an iphone 13 in your hand after you order dat -- after you ordered it, at what point do you draw the line and wait for the next upgrade?
tom: if you don't have an iphone 13 in your hand, you're not cool, and you can't use 5g to watch "pitch perfect." that is what i have learned. analog and digital made worldwide headlines with eyes yesterday. unit sales are underestimated. dan ives that wedbush saying flat out people have it wrong on the growth of these tech juggernauts. ben laidler reaffirms today his optimism as well on revenue growth not only in tech, but across all. it is an exceptional it up block hour. no other way to put it. lagarde at 8:30. michael mckee with america and the economic data. stay with us. this is bloomberg. ♪ laura: with the first word news, i'm laura wright. president biden is set to announce that there is an agreement on his economic agenda area bloomberg has learned
president will announce that democrats have agreed on a framework of tax and spending proposals that he is optimistic congress can pass. he will go to capitol hill and brief house democrats on a deal. later, the president will speak at the white house. in taiwan, president tsai ing-wen says she has faith the u.s. would come to the island's defense if china tries to invade, a comment bound to annoy beijing. tsai told cnn the threat from china is increasing every day, and confirmed the presence of u.s. troops in taiwan. cnn says there are fewer than three dozen american servicemembers there. the price of european natural gas and power fell today after signals from president vladimir putin that russia will send more gas to the continent next month. putin has told them to start refilling european gas facilities next month.
caterpillar posted third-quarter earnings that beat estimates. the world's biggest maker of mining and construction equipment reported demand for heavy machinery that outweighed concerns of supply chain issues. meanwhile, higher labor i'm afraid, and materials prices drove up -- labor, freight, and materials prices drove up costs. a record $14 billion from asset sales in the third quarter. the private equity business delivered most of the proceeds. the sales helped drive carlyle's distribution earnings to a record beating estimates. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm laura wright. this is bloomberg. ♪
semiconductor supply basically quarter after quarter. tom: matthew miller in conversation with mr. diess of volkswagen on the manufacturing challenge. we've got so much going on this morning. we've got lagarde in 12 minutes. we've got michael mckee with economic data. we thought maybe would take a breath right now and talk to an adult on tech. there is too much talk that i think is off the mark. you do not get off the mark with angle flax, senior research -- with daniel flax, senior research analyst at neuberger berman. dan, what does the street get most wrong about apple and amazon? daniel: good morning. i think what they get wrong or underappreciated with apple is just the extraordinary pace of innovation we have seen for decades, if you think back to the ipod, the iphone, mac.
they continue to reinvent with the new silicon. the wearables category, i think in a lot of ways, is just getting started. what i would say in terms of what they perhaps don't appreciate with amazon, again, a company obsessed with innovating and delivering value to customers, you have seen them enter and define new markets ordinary growth for amazon andra apple over the next several years. tom: what is so important here is that phrase several years. you know everyone is looking up six months. maybe they go to june of next year. charles cantor 101 at neuberger berman is give me the five-year timeframe. where are these two flagship companies of america and the world in 2026? daniel: with apple, i think what is going to be a much bigger part of the story in 2026 is what they are doing in health care. i think we are already seeing
signs. you have the ecg app in the watch. the phone allows you to measure walking steadiness. we know for a lot of people, being able to monitor how effectively they walk is incredibly valuable. we know apple is dot studies across a wide variety of areas with partners in terms of women's health, mental health. there's a lot of areas where they can make a big difference to their users' lives, and of course, we all appreciate how fitness is more important than ever. with amazon, i would tell you that what we think can happen over the next five years is that their logistics operations will continue to grow in both scope and the ability to get you packages even faster. this notion of the billeted to get you packages in hours really helps to redefine what people can come to expect.
the other thing where we see a much bigger opportunity is in their advertising business. this helps merchants really reach their customers. so a lot to like over five years. lisa: how about their cloud business, considering the fact that it is becoming a duopoly between azure and eight of u.s. -- and aws? daniel: we see a much bigger market than just the two of them. for example, i would highlight the google cloud platform, which has also seen strong growth. aws and micro soft azure content -- and microsoft azure continue to perform very well. the cloud opportunity in many ways is in its infancy. when we speak to customers, the ability to become more agile, innovate, create, try new business models, all of those are multiyear drivers for the cloud.
if amazon is able to innovate and deliver value, we see extraordinary multiyear growth prospects even from here. kailey: i want to bring it back to apple because i am fully bought into the ecosystem. i have a mac, ipad, airpods, apple watch, you name it. i broke my watch back in september and everyone said, wait for the new model. i didn't because i had no confidence that i would get it quickly, and i am glad that i bought an older model because i still don't know if i would have a new watch. how much are those supply chain issues going to be an issue for apple, trying to meet the demand may be there, but demand that isn't -- but supply that isn't? daniel: i think supply is an issue. it is going to remain that way for months to come. i think what is going to matter over the next one to two years will be whether they can execute on product cycles. we have seen with the new watch, and of course, it is going to take time to get it into everyone's hands who want one, is that the screen size increase
of nearly 20% really allows for a richer, more immersive experience. so there is potential for some sales to get lost due to the supply chain, but i think the longer-term story, the innovation and the healthy product cycles, is going to matter more over the next couple of years. kailey: but on the subject of innovation and product cycles, apple upgrades their products often. we get a new iphone every single year. if they are having issues with the iphone 13, does that not create an effect where you just don't end up seeing demand for that phone because people are going to wait for the next model that is only coming out less than a year from now? daniel: what we saw with the iphone 12 was, despite severe delays given covid, given the difficulty with supply chains globally, they launched it very late, but sales were extraordinary because it was the innovation in the product. i think we are likely to see something similar this year in terms of the iphone 13 was
actually introduced a little earlier than the 12 was. the demand seemed healthy, but customers want to be able to get the very best product they can, so i think most will look to buy it if they are able to. tom: dan flax, give me an iphone 13. goodbye. [laughter] thank you for joining us this moring. we've got to jump to michael mckee now because we've got really important data, then lagarde. what is beneath the headline data on this gdp number that has your attention? michael: a lot of people haven't focused on the idea that in the inventories, they have been declining for three months in a row. that is a subtraction from gdp. if the supply chain issues are continuing, then manufacturers are running down their inventories. tom: this sounds like jan hatzius 101. how important is domestic final sales away from all of that mumbo-jumbo? michael: we are hoping that is
what keeps the economy afloat, along with business investment, but we are not sure how much it translates because business orders have gone up, but shipments have not gone up as fast for current gdp. tom: michael mckee does such a good job of parsing this out. it is much harder than you think in real time to do this. we are making jokes and all of this, and mckee is actually looking at it. we will do that for you before we go to christine lagarde. it is just the oddest thing. it is not like it is to america's. it is like it is 14 america's. lisa: and then there is corporate america, operating on its own sphere entirely. we are seeing this slowing growth, the lowering of a trajectory that is really posing a problem for central bank's. i don't know what they will do in terms of messaging that forward. tom: kailey, you really nail it with the watch. that's the way it is across anything. kailey: we talk about supply
jonathan: good morning -- tom: good morning to all of you. coming up on economic data, this is futures up 14, the 10 year yield 1.5 3%, the shock of lower yields in the past three to four days. economic data streams out at 8:30, and certainly a first blush of claims. it is a good statistic. michael much -- michael mckee joins us. michael: we are looking at jobless claims falling, 281,000. jobless claims are continuing to improve and it looks like the economy is absorbing some of the people on the sidelines. the only number that we have yet that i am seeing is the overall
headline number of a 2% gain, weaker than the 6.7% on revised in the prior quarter, and lower than the 2.6% forecast. we are looking for the first release, and we are getting it in, as tom says, drips and drab as the internet is a slower way of reporting this. personal per -- personal consumption up 1.6%. it is way down from 12% in the third quarter -- second quarter of the year. the gdp price index, 5.7%. this is interesting, you and i have talked about this before. the difference between nominal and real gdp with inflation rising almost three times the rate of real gdp. tom: if you look at the numbers and let me talk to you while you digest the numbers, i am trying
to find domestic final sales to see this spirit of the economy. to me, lawrence summers is looking at the screen and saying this looks very staggy and f lationy. michael: a lot of people will talk about does this support the stagflation idea? it supports the flation idea. we do not know how long inflation will remain elevated. we are seeing signs in the recent indicators. remember, this is a backward look, more recent indicators that we are getting growth back and are expecting consumer spending to rise again. i have the numbers in front of me for our spending and it shows that durable goods spending, spending on staff while services rose on the month by 7.9%. we are seeing that shift from
buying stuff to buying experiences. the other number everyone wants to know is nonresidential fixed investment. 1.8%. 9.2% in the prior quarter. this is not putting as much money into the economy. a lot of people cannot get their stuff, and that is a problem. exports down 2.5% while imports were up 6.1%. we can see why the trade deficit falls the way it does. tom: lagarde is speaking. lisa, i want to point out that my first look at the headline numbers, we will see in american media talking stagflation. lisa: this edifies the ideas of faster inflation and slower growth, what do the central banks do with that. as you would expect, longer-term yields in the u.s., down a touch. the dollar strengthens just a
touch, nothing to write home about. what you see is that the fed will have less of an incentive to hike and yields also come down. we are moving back to a normal that does actually resemble what we used to see. a 30 year yield, 1.94% in the 210 spread and even contracting more. a slower growth ahead and price increases are not completely benign when it comes to the growth outlook. i do wonder, after you parse through the numbers that you get a sense that the fed is correct. markets are wrong and pricing so many rate hikes. michael: two problems, the markets might be wrong because we anticipate a rebound, but also because of the nature of the whole thing it is impossible to know how the economy will behave going forward. i mentioned before that i would be watching inventories.
after three months of decline actually rose $90.8 million, that adds to gdp. we talk about how companies cannot get their stuff, but it does suggest that maybe things are not as bad as they appear going forward. tom: how important is it for madam lagarde to have a buoyant american economy? michael: it is important because we are an extremely important trade partner. same problem that lisa just brought up pushing back against the market saying you have to raise rates. tom: she is doing what the mike mckee guard. inflation pressure should ease in the course of 2022. she goes on to say that the grip of pandemic on the economy visibly lifted higher energy prices might reduce purchasing power, she stole that from lisa,
let us listen to the president of the european central bank. christine: lengthen considerably and transformed costs and energy prices have surged. this constrains are clouding the outlook for the coming quarter. the labor market continues to improve. unemployment has fallen and the number of people in job retention schemes are down significantly from the peak last year. this supports the prospect of higher incomes and increased spending, but both the number of people in the labor force, and the hours worked in the economy remain below their pre-pandemic levels. to sustain the recovery, targeted and coordinated fiscal support should continue to complement monetary policy. the support will also help the
economy adjust to the structural changes underway. infective -- effective implementation of the next-generation e.u. program and the package will contribute to a stronger, greener, and more even recovery across euro area countries. let us look at inflation. inflation increased to 3.4% in september. we expected -- expect it to rise further this year, but whether the current phase will last longer than originally expected, we expect inflation to decline in the course of next year. the upswing in inflation largely reflects a combination of three factors, first energy prices, especially for oil, gas, and
electricity, have risen sharply. energy inflation accounted for about half of overall inflation. second, prices are also going up because recovery demand related to the reopening of the economy is outpacing supply. these dynamics are especially visible in the prices of consumer services as well as the prices of goods affected most strongly by supply shortages. third and finally, base effects related to the end of the cut in germany are still contributing to higher inflation. we expect the influence of all three factors to ease in the course of 2022 and to fall out of the year on year inflation calculation. as the recovery continues, the
gradual return of the economy to full capacity will underpin a rise in wages over time. market and survey-based measures of longer torrent -- longer-term inflation expectations have moved closer to 2%. these factors will support underlying inflation and the return of inflation to our target over the medium-term. the recovery continues to depend on the course of the pandemic, and further progress with vaccination. we see the risks to the economic outlook as broadly balanced. in the near term, supply bottlenecks and rising energy prices are the main risks to recovery and outlook. if supply shortages and higher energy prices last longer, this
could slow down the recovery. at the same time, if persistent bottlenecks feedthrough into higher than anticipated wage rises or the economy returns more quickly to full capacity, price pressures could become stronger. however, economic activity could outperform our expectations if consumers become more confident and save less than currently expected. let us look at the financial and monetary conditions. growth and medium-term inflation dynamics still depend on favorable financing conditions for all sectors of the economy. market interest rates have increased. nevertheless, financing conditions for the economy remain favorable, not least because bank rending -- lending rates for firms and households
remain at historically low levels. there was a pickup in september, but lending to firms remains moderate. this continues to reflect the fact that firms generally need less external funding since these have high cash holdings and are increasingly retaining holdings. lending to households remain strong, driven by demand for mortgages. our most recent bank lending survey shows that credit conditions for firms stabilized and were supported for the first time since 2018 by a reduction in banks. by contrast, banks are taking a slightly more cautious approach to housing loans and have tightened lending patterns for these loans. bank balance sheets are
supported by favorable funding conditions and remain solid. let me conclude. the euro area economy continues to recover strongly, although it a more moderate pace. rising energy prices, the recovery and demand, and supply bottlenecks are personally -- are currently pushing up in inflation. inflation will take longer to decline than previously expected. we expect this to ease in the course of next year. we continue to first see inflation -- foresee inflation in the medium-term. our policy measures including revised forward guidance on the key interest rates are crucial to helping the economy shift to a sustained recovery and, ultimately, to bringing inflation over the medium-term
to our target. we are now ready to take your questions, thank you. >> thank you, president -- president lagarde, the first one . the floor is yours, please. >> president lagarde, thank you for taking my questions, can you hear me? i was wondering because everyone was anticipating that this meeting was about inflation, so what have you been discussing and was there at least a slight different assessments of the nature of inflation given that it is at a 13 year high, and the second question is on the market expectation on the rate hike. economists were saying that the
market has not fully dissolved your new forward guidance. you can tell us more about it and why the market is wrong to expect a rate hike by next year. pres. lagarde: thank you very much. actually, we talked about inflation, inflation, inflation. that has been a topic that has occupied a lot of our time and debates. we went in depth into analyzing the factors that are driving inflation. and we looked at, obviously, what is happening now, which is clearly of concern to citizens of europe. we also looked at the medium-term outlook that we have, and, you know, i think i would summarize those factors driving inflation as we see it at a moment in two categories.
one is related to pandemic and recovery, and the other is related to energy. if you look at the one that is related to recovery and the post-pandemic period, we are seeing shortages. we are seeing shortages in equipment, and labor, and that has to do with the fact that the rebound of demand, the decompressed demand is not exactly connected to supply, and we have had the supply demands disconnection. the second, as i said is energy. on that front we have drivers of the energy prices that have to do with energy and demand, but also other factors, having to do with inventory, with the wind,
with maintenance in norway, with demand in china, supplied by russia. all elements that are con tribute thanks to the high energy private -- contribution to the high -- contributing to the high energy prices. those are the key places. there is a third category, which is very much related to the base effects, and i would put first and foremost, obviously, the german vat which continue to -- which can you -- which continues to impact inflation prices this year but disappears january 1. this is one category of effects that will fade as of the beginning of the year. we also believe that the other two pockets that i have just discussed with you, that is recovery related and pandemic
consequences on the one hand, energy prices on the other hand, we have every reason to believe that they will gradually fade over the course of 2022. i am happy to discuss further but there might be other questions. we did talk a lot about those, and we did a lot of soul-searching to actually test our analysis, and we are confident that this analysis of the temporality of those two categories is actually correct, and will lead to a decline over the course of 2022. granted, it will take a little longer than what we expected, and the bottlenecks will gradually be sorted out, but it will take a bit longer. on the energy front we believe that it is in the course of 2022 that we will see a decline if
not stabilization of energy prices. that is predominantly what we discussed with members of the governing council this morning and yesterday. we also obviously looked at the financial conditions that prevail at the moment in order to arrive at our decisions. inflation took a lot of our time, and it takes quite a lot of bit of the space of the monetary policy statements that you have in front of you. i would, by the way, add that our analysis certainly does not support that the conditions of our forward guidance are satisfied at the time of lift off as expected by markets, nor any time soon thereafter. you asked me about this market expectation regarding lift off. we look at all of that, but we really, very deeply looked and tested our analysis of the
drivers of inflation and we are confident that our anticipation and analysis is actually correct. >> thank you. the next question goes to bloomberg news. the floor is yours. carolyn: thank you for taking my question. president lagarde, you know that many of your colleagues push back against the idea that you need to tighten policy in response to the inflation spike, but many global counterparts have started doing so. could you explain in what way the euro zone's underlying inflation dynamics are fundamentally different from those in different economies or do you think other central banks might be overreacting to the rise in prices? secondly, on the pace, you decided in september to flow to
a moderately slower pace than the first quarter but we have not seen that in the weekly data so far this month. does this have to do with countering the effects of policy tightening expectations or how should we read the data? pres. lagarde: sure. let me start with the latter part of your question which has to do with the pep purchases, and the decision that we made, and that we reiterated this morning at our monetary policy meeting to slow the pace of purchase as compared with the second and third quarter of 2021. this has been the case. this is what happened in september and decided for october and this is the view we have taken this morning as well. a slowdown in the pace of purchases, which was at a head
last time around. this is not tapering, this is calibrating appropriately on the basement -- basis of commitment made in december to look at the combination of financing conditions and determined that they are favorable and a look at what the inflation outlook is, and wheat -- and we came to the conclusion that on the basis of both financing conditions that are favorable in the levels of corporate's and households that there are historic interest rates that are historically low level and plenty of supply of lending available, and when we look at inflation outlooks, we concluded that the same assessment was appropriate this time around. now, you asked me to compare with other central banks, i think first of all the comparisons are odious because
we are not talking about the same economies. the outlook is different, the level of inflation that they have is different. some of them or at or above target in the inflation outlook, and that is that they adopt different approaches. some central banks are in commodity producers are -- and exporters so that justifies particular approaches. clearly the euro area is a large market economy, it is not a small open market economy. it has to decide on the basis of data what the monetary policy should be in order to deliver on our mandate which is price stability. i can assure you that we are fully committed to our 2% inflation in the medium-term,
that is our target, we affirmed it in july and we are determined to deliver on that target but we have to do so on the basis of data, we have to be patient and persistent. as to policy going forward, and that is particularly so at the effective low as we have indicated recently. >> thank you. and now the next question goes to clouse. >> good afternoon, thank you for taking my questions. the first one is not mind but one that we receive a lot from viewers and readers at the moment. i would like to summarize it like this. they would like to know what are the preconditions to be necessary for the ecb to return to normality, meaning that interest rates are going up again, and that purchases would
be reduced or stopped. my second question relates to research that the center for economic research in germany has done recently, and they looked at the correlation by analyzing statements and speeches of cb -- ecb and governing council members and they found correlation on the one hand between fiscal interests of member states and monetary policy rather than price stability and monetary policy which was expected. basically, it is suggesting that there is a certain kind of focus on fiscal policy by some governing council members and that may influence the decision-making process. how you feel about these findings? pres. lagarde: thank you very much.
let me clarify that the european central bank is independent, and is bound by the treaty of europe , to put it simply, which gives us one mission, price stability. as i said, we are committed to deliver the price stability that forms our mission under the european treaty. this is our commitment, and we have defined it very specifically by indicating that price per the -- price stability is a 2% target in the medium-term. that is what will guide us in delivering our monetary policy as the years go by. second point, as you know we are still operating on the basis of the pandemic emergency purchase program fully justified given
the totally exceptional circumstances and very severe circumstances that affected the whole world, but particularly the euro area. this pandemic emergency purchase program pepp is at this point in time going to end at the end of march 2022. you asked me about the return to what you would you got -- you would regard as normal policies, i am not sure what is normal to policies. there are the traditional tools used in the past and that have been used to good effect. and, over the course of the developments of the financial crisis in particular and the european sovereign debt crisis, new areas had to be explored. as a result of that, the ecb had to go into negative rate territory and had to develop
asset purchase programs over the course of time. as i mentioned, one program, pepp, when we speak and look at the situation i have every reason to believe it will come to its end in march 2022, which was a term that was envisioned -- envisaged in the first place. as far as the rest is concerned we will be bound by our forward guidance, which we have spelt out in three dimensions, if you will in order to give guidance as to when we will lift interest rates. and those three elements, i would like to just mention them yet again, have to do with inflation. the first one is that inflation reaches 2%, our target well ahead of the end of our projection horizon. we have more certainty about that forecast, more elements to
assess that. second condition that the inflation remains at those levels durably for the rest of the projection horizon, roughly three years. third, there is sufficiently advanced realized progress and underlying inflation or headline inflation to stabilize the 2% over the median term. i think they conditions for this interest left off which is as -- of interest to your audience is spelled out in these -- in this forward guidance which clearly under the initial analysis are not satisfied and certainly not in the near future. >> thank you. the next question goes to tonya of --. over to you. >> hello, can you hear me? pres. lagarde: very well.
>> you mentioned before the shortages and materials and supply chains that are clouding the outlook in the next month. on inflation and on the economy. how long do you think they will last, because germany has definitely had to correct very heavily the outlook for the economy and inflation for the next month. there are many questions remaining about how long could it last or how long would you think in your outlooks that it could last. second question. in the worst-case scenario, so inflation would not be temporary because these effects could last, do you see any risk of stagflation, thank you. pres. lagarde: on your first question, the supply bottlenecks
. first of all it will fade. the economic factors are such that they will wreak -- reconnect supply and demand. lisa: this is "countdown to the open" and we are listening to christine lagarde. you have breaking news out of washington, d.c.. josh is groaning up -- joining us now with the headlines. josh: developments, president joe biden heading to congress shortly to brief house democrats and progressives on a framework on his build back better reconciliation package, the key to moving forward the infrastructure package. the top lines on this or -- are one point seven 5 trillion spending