deviations from 2 % are equally undesirable. 4 how economic agents assess future price developments influences their behaviour – for example, purchasing decisions among households, wage negotiations between wage bargainers, or pricing policies of enterprises. if private agents expect inflation to stand at 2 % over the medium term, and if this expectation is reflected in their economic decisions, it will be that much easier for the central bank to achieve its objective. its monetary policy is thus more efficient. this means that the desired effect can be achieved with less use of instruments. if, by contrast, workers and trade unions expect persistently high inflation rates, they could continue to make well above - average wage demands, for example. or enterprises could continue to raise their prices in anticipation of further increases in costs. if targets are clearly missed over a longer period of time, the risk of economic agents adjusting their expectations will grow. against the backdrop of the current persistently high inflation rates, there is a danger that inflation expectations will become detached from their anchor. according to the ecb consumer expectations survey, the expectations of consumers in the euro area for inflation 12 months ahead and three years ahead declined significantly in april, after they had increased markedly again in march. according to the 3 / 9 bis - central bankers'speeches bundesbank's survey, the downward trend in the inflation expectations of individuals in germany for the next 12 months recently continued. however, inflation expectations here, too, remain at an elevated level. the financial markets exhibit a high level of inflation uncertainty beyond the medium term. in this context, financial market participants are hedging against inflation rates above the target, which is reflected in the historically high inflation risk premia. longterm inflation expectations for the euro area, which are derived from expert surveys by consensus economics, are closer to the inflation target of 2 %, but still slightly higher. in order to continue to provide a secure, credible anchor, monetary policy must make a convincing stand in the fight against inflation. at present, this is primarily a question of convincing through our actions – that is, raising key interest rates. only if our actions are persuasive can our words as central bankers have an impact, both in terms of inflation expectations and expectations about future monetary policy. 2. 3 guidance for expectations concerning the monetary policy stance for some time now, communication has been seen as an independent monetary policy instrument. here, i mean forward guidance. it was introduced in the euro area ten years ago

3. 5 %. i do not think this is high enough yet. as i have already mentioned, the extent to which interest rates will actually have to rise will depend on the incoming data. one thing is for sure – once we have hit that peak rate, key interest rates will stay at that level for as long as necessary. if we are to overcome inflation, we need both persistence and tenacity. furthermore, the necessary normalisation and tightening of monetary policy requires central banks to reduce their balance sheets. the eurosystem will now reduce its balance sheet at a faster pace, which i very much welcome. reinvestments under our largest asset purchase programme ( the app ) will be completely discontinued as of july, 6 / 9 bis - central bankers'speeches meaning that bond holdings will fall by an average of €25 billion per month. according to the latest decision, it is still envisaged that principal payments under the pandemic emergency purchase programme ( pepp ) will be fully reinvested by the end of 2024. the securities holdings from the monetary policy purchase programmes are not the only factor contributing to the reduction in the eurosystem's balance sheet total. banks are also paying back their long - term loans to us. when it comes to reducing the balance sheet, more speed is a good thing. i am not concerned that the market will be unable to cope with this reduction. even if market volatility were slightly higher, it would not be a disaster, as markets were significantly more volatile before the 2008 financial crisis than they are at present. but, of course, we will make sure that the process is approached with an appropriate level of moderation on the whole. the ecb governing council must also ensure that rises in key interest rates are transmitted to real economic activity via the financial sector as smoothly as possible. the rapid and sharp interest rate hikes have caused banks'funding costs to increase considerably. as a result, bank loans have also become more expensive and lending conditions have tightened. loan growth has slowed markedly due to both the less favourable conditions as well as weaker demand for loans from enterprises and households. monetary policy tightening is having an effect, but not an excessive one. despite the recent turmoil in the financial system, especially in the us banking sector, the transmission of monetary policy in the euro area has not fundamentally changed thus far. the euro area banking system has proved resilient and sound. a large part in this has been played by