X are preparing to ditch the u. K. At least the republican senator say they will vote to block the current version of their partys health care bill. What does this mean for tax reform . This is bloomberg surveillance. Mario draghi will speak shortly. We also have all your currency checks. Ecks. First things first, lets check quickly on your stock market. Global stocks, mixed. Investors believing an appearance by janet yellen. She speaks in london later today. They are looking to her for a close on the outlook for President Trump says the Supreme Courts partial revival of the travel ban is a clear victory. People from six majority muslim countries will now be barred, unless they show a genuine relationship with a personal entity in the u. S. The court will consider in october whether the executive order is constitutional. Republican senators will look to block the latest version of the partys health care bill. A new estimate from the Congressional Budget Office found the bill would leave an additional 22 Million People without Health Insurance in a decade. Republican leaders still hope to hold a final vote this week. Brazils president michel temer has been charged with corruption by the countrys top prosecutor. The highly anticipated movies to be approved by 2 3 of the chamber of deputies to proceed. If found guilty, the president would be stripped of office and would be jailed. Temer has repeatedly denied wrongdoing. The European Union demanded britain go further to guarantee the rights of eu citizens after brexit. The comments deal a blow to the prime ministers hopes for a swiss deal. Nhe artist antitrust fine i europes history later. The announcement from competition is due at 10 45 u. K. Time. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. Im sebastian salek. This is bloomberg. Hereine Simon Derrick is and ed shing is also here. Toare expecting mario draghi make his defense for the stimulus measures. Ehs giving that hes giving the keynote speech in portugal. What will you be looking out for . Clues about why he is not ready to start tapering . We have very strong signals that the pace of tightening will be picked up. We have consistently strong numbers. It will be how he pushes back against that pressure from Northern Europe. Know a lot of the political concerns within europe are abating. There are concerns about greece, and the possible default that could have been in july is now gone, thanks to that deal. The shortterm issues for the ecb, many of them have disappeared. Francine two you agree with do you agree with that, a robust defense . He also needs to explain why inflation is so low. That will be a tough one. He does what he can to get inflation up, but he is fighting a losing battle because we have a lot of global disinflationary influences, but he is doing what he can. He is continuing with qe. Despite the fact that there is a wide gap in unemployment, he will run out of german bonds to buy. They will lead to be some sort of tapering, and how does he communicate that message . He is doing everything he can, but at the same time, there are limits to what can be done with qe pragmatically. Francine at the same time, we understand that the president mario draghi will start speaking shortly. There is an introduction by his right hand woman, on the screen. He keeps exploding the inflation has to do with the labor market, but what if it were something deeper . You would have to look at oil prices, for example. I think we have another issue. We have been applying the singer Monetary Policy across the eurozone for 18 years. At no point, has it been ideally suited for all. We have such massive divergence of needs between what Northern Europe and Southern Europe requires. To get to these points, we have to have some type of fiscal policy shift to help them process. Francine to hear from the president himself, mario draghi. You can also follow this on tliv. Now, the global processes reaffirming. We need to make sure this massive growth is Sustainable Investment that drives stronger productivity growth is crucial for that. And the return for the eventual normalization of Monetary Policy. Investment in productivity growth together can unleash a vi rtuous circle, so that strong growth becomes durable and selfsustaining and ultimately, is no longer dependent on a sizable Monetary Policy stimulus. The discussions we will have over the next two days, in particular understanding the puzzles of low productivity growth and persistently low investment, are therefore, highly relevant for the past of the economy and our Monetary Policy. Yet, as we anticipate, the problems of tomorrow, we must also work on the issues of today. For Central Banks, this means, an unusual situation. We see growth above trend and well distributed across the euro area, but inflation dynamics remain more muted than one would expect on the basis of output gap estimates and historical patterns. An accurate diagnosis of this apparent contradiction is crucial to the appropriate policy response. And the diagnosis by a large is this. Monetary policy is working to build up reflationary pressures, but this process has been slowed by a combination of price shocks, more slack in the labor market, and a change in the relationship between slack and inflation. Low inflation is also perpetuating these dynamics. These effects however, are temporary and should not cause inflation to deviate from its trend over the medium term, so long as Monetary Policy continues to maintain the solid anchoring of Inflation Expectations. Hence, we can be confident that our policy is working and its full effects on inflation will gradually materialize. But for that, our policy needs to be persistent and we need to be prudent in how we adjust its parameters to improve economic conditions. Understanding inflation dynamics requires us to divide up the inflation process into two legs , the effect of Monetary Policy on aggregate demand and the effect of aggregate demand on inflation. All the evidence suggests the first leg is working well. Though the euro Area Recovery started later than those in other advanced economies, we have now enjoyed 16 straight quarters of growth with the dispersion of gdp and employment growth rates among countries falling record low levels. If one looks at the percentage areal sectors in all euro countries that currently have positive growth, the figure is the first4 in quarter of 2017, well above the average. Above 6. 4 million jobs have been created in the euro area since the recovery began. The role of Monetary Policy in this will story is clear. 2014, our Monetary Policy stance has been determined by low policy rates, asset purchases in Financial Markets and retargeted operations for banks, reinforced by guidance on both. This has created strong downward pressure on financing costs with rates falling steeply across asset classes, maturities, and countries, as well as across different categories. Converging financial conditions have in turn, fed into rising domestic demand. According to our bank lending survey, our latest easing phase has coincided with a strong rebound in demand for Consumer Credit to purchase durable goods. The demand for loans for fixed investments has gradually firmed. At the same time, following reducedg costs have Interest Payments and whichtated deleveraging, is one reason why for the First Time Since 1999, spending has indebtednesswhile has been falling. This is a sign the recovery might be becoming more sustainable. To put our measures into context, since january of 2015, following the announcement of the expanded asset purchase 6 inram, gdp has grown by 3. The euro area, a higher growth rate than in the same period following qe 1 and qe2 in the u. S. , and the percentage point lower than that period following qe3. Unemployment has also risen by more than 4 million since we announced the expanded Asset Purchase Program, comparable with both qe2 and qe3 in the u. S. , and considerably higher than qe1. For the monetary transmission process to work however, stronger growth and employment should translate into higher capacity, scarcity and production factors, and in time, upward pressure on wages and prices. This is what we see. The unemployment gap, the difference between actual unemployment and the known acceleration rate of unemployment, is narrowing and forecast by the commission to close within the next two years. Surveys of business Capacity Utilization are now above their longterm average levels. And inflation is recovering. 2019, we016 and estimate that our Monetary Policy will have lifted inflation by 1. 7 Percentage Points cumulatively. Yet, the second leg of the inflation process, the transmission from rising demand to rising inflation has been more subdued than in the past. How can this be explained . The link between output and inflation is determined by three main factors. Prices, thecks to size of the outfit gap, and the impact on inflation, and the extent to which current inflation feeds into prices and wages. In different ways, each of these relevant forbeen the delayed reaction of inflation to the recovery. Starting with external factors, one explanation for this low improvement in inflation dynamics is we are still suffering the after effects of price shocks in Global Energy and commodity markets, which have led inflation to move in different directions. Inflation, has indeed, and subject to such shocks over recent years, most notably within the oil and commodity price collapse in 2014 and 2015. This is only depressed the cost of deported energy, but lowered global Producer Prices more generally. Analysis suggests the global compartment was considerable. 2 3 of and 2016 around the deviation of the euro area headline inflation from a model based mean can be accounted for by global shocks linked to oil prices. Even though the downward pressure on inflation from past Oil Price Falls is waning, oil and Commodity Prices are still having a drag in effect, if only because they continue to lack a clear upward trend. In fact, lower oil and food prices than those assumed in the march 2017 projections are an important factor behind the downward revision of our inflation forecasts. Effects is the main driver of the considerable volatility in headline inflation that we have seen and will be seeing in the euro area. Expandingices are the subdued prices of core inflation, too. This is because imported Consumer Products account for 15 of industrial goods in the euro area. Changes in Commodity Prices be through Service Items and into industrial goods produced with high energy intensity. As a result, in the First Quarter of 2017, Oil Sensitive items were Still Holding back core inflation. Illustrates that core inflation does not always give us a clear reading of underlying inflation dynamics. Global factors therefore, do appear to be weighing on the path of inflation today. Suggests thesis drivers of Lower Oil Prices are mainly supply factors, which a central bank can typically look through. And even if supply factors affect the path of inflation for some time, with Inflation Expectations secure, they should not ultimately affect the inflation trend. A second inflation for the discrepancy between real developments and inflation is uncertainty surrounding the size of the output gap, and its impact on inflation. This might be happening for a variety of reasons. One possible reason is we are currently experiencing positive supply developments, in particular, we do observe that as the recovery strengthens, the supply of labor is rising, too. Labor force participation has been growing consistently over the last few years. There are increases in Participation Rates of older workers. We also see some evidence that labor supply has become more elastic due to immigration, particularly in stronger growing economies, such as germany. Euro area, the Participation Rate has risen by 1. 5 Percentage Points, where in the u. S. , it has fallen by three Percentage Points. Structural reforms and labor markets have been a factor in his labor supply boost. Similarly, past reforms in product markets may also have a positive effect on the supply side by reducing price caps, increasing productivity, and raising growth potential. Another reason why there is in certainty is the correct notion of unemployment, that is, there might be residual slack in the labor market that is not being fully captured in the headline unemployment measures. Unemployment in the euro area has risen during the crisis, but so too has the number of workers who are underemployed, meaning they would like to work more hours, or who have temporary jobs and want permanent ones. This has implications for inflation dynamics, since these people might prioritize more hours, or job security, over higher wages in employment negotiations. If one uses a broader measure of labor market slack, including the unemployed, underemployed, and those marginally attached to the labor force, that measure currently covers 18 of the euroyen area labor force of the euroa rea labor force. Appear tourve models be more successful and privy to inflation. A third reason why slack might be larger is the effect of the socalled global slack. This is the notion that globalization has made labor supply more uniform across the globe and labor markets more contestable. Foreign labor markets therefore have a dampening effect on domestic inflation, even as domestic slack is shrinking. The evidence however, is not there. For example, new ecb announces five the limited support for the thesis that global slack is weighing on euro area inflation today over and above the impact it has on global prices. Along the question of the level of slack is the impact of slack on inflation. This is the well known debate around the phillips curve. There are reasons to believe that wage and price setting behavior might have changed during the crisis in ways that slow the responsiveness of inflation. For example, Structural Reforms that have increased wage wagesning may have made more flexible downwards, but not necessarily upwards. Likewise, we see today that firms are absorbing input costs through lower margins due to uncertainty over future demand, which would also tend to temper price pressures. Ecb estimates show that if we take into account the unusually large and purchased persistent shocks, the phillips curve right be somewhat flattene recently. This depends on the cyclical position, it might steepen the gains when the economy reaches and surpasses full potential. Various reasons might delay the transmission of our Monetary Policy to prices, they would not prevent it. Cycle business matures, the higher demand result will accelerate price pressures, while firms Pricing Power will increase, and the broader measures of slack will converge towards the outline measures. The u. S. , the gap between unemployment and those broader measures typically opens in recessions and shrinks in expansion. It is convergent to the levels recorded before the 2001 and 2007 recessions. Just as oil and commodity price shocks, we can be reasonably confident that the foreces weighing on inflation are temporary, so long as the dont feed into lasting inflation dynamics. This brings us to the third possible at the nation for why growth might be divergent from inflation. The hypothesis that a persistent period of low inflation is feeding into price and a fourt morein persistent way. What is clear is our Monetary Policy measures have been successful and secure the anchoring of Inflation Expectations. In the past, as Interest Rates approached zero, some good question our ability to add sufficient accommodation to combat the prolonged period of too low inflation. Doubts byd those demonstrating that we would take any measures necessary within our mende to deliver our mandate and those measures were affected through further easing financial conditions. The inflation risk premium has now become more or less priced out of the market. That being said, the prolonged period of low inflation is always likely to be exacerbated formationd price that occurs due to institutional factors, such as wage taxation. This has plainly happened in the euro area. Ecb Analysis Finds that compared with longterm averages, low inflation dragged down wage growth by about 0. 25 Percentage Points each year between 2014 and 2016. Where we areas to looking has increased recently and is mixed. There were signs that taxation had fallen in the early part of the crisis and our empirical estimates suggest that the weight of fast inflation has decreased. Yet, there is also evidence that it has returned in some large euro countries. In italy for example, the indexation