demand in order to equate supply with demand. accordingly, this factor tends to magnify the impact of quantitative tightening on the term premium11. second, the impact of balance sheet policies may also vary depending on liquidity conditions. in qe times, more liquidity injected into the system did not have a major impact since the market was saturated with excess cash and thus money market conditions were rather insensitive to additional liquidity injections. but in qt times, the gradual withdrawal of excess liquidity will make money market conditions increasingly sensitive to the amount of cash that is withdrawn from the system, and this could mean more volatility in the overnight rate transmitting in the form of more term premium throughout the curve. indeed, several episodes in the past have shown these potential effects associated with qt12. likewise, if we enter into a co ntext o f higher interest rate - gro wth differential, in the absence o f a clear fiscal co nso lidation path, fiscal sustainability co ncerns co uld also increase, given that debt levels might stabilise at higher levels o r a higher structural balance might be needed to achieve the same level. and this impact co uld be hetero geneous amo ng co untries, depending o n specific fiscal and eco no mic co nditions. fo r example, when the fed first anno unced, in may 2013, that it intended to slo w do wn the asset purchases, markets were surprised, causing the yield o n ten - year treasuries to sho ot rapidly upwards fro m roughly 2 % to 3 %. or the us mo ney market crash in mid - september 2019 which was caused by an abrupt halt in trading due to scarcity o f liquidity. mo re recently, bo nd markets are also exhibiting elevated vo latility. in particular, in the uk, after the go vernment anno unced large tax cuts and no curb in go vernment expenditure in september, the bank o f england was fo rced to intervene quickly in respo nse to rising government bo nd yields which threatened the so lvency o f british pensio n funds. the bank o f england made it clear that it was acting to ensure financial stability, rather than changing its mo netary po licy stance, and ended its interventio n in octo ber. there are,

bottlenecks. what is more, the pass - through of these supply shocks to prices has been faster and stronger than in the past. indeed, according to banco de espana estimates, close to 75 % of the current inflation rate in the euro area is due to the direct and indirect effect of higher energy and food prices. but there is also a pent - up demand component from the post - pandemic recovery that, while weakening, is still driving up prices, especially in the services sector. 1 the depreciation of the euro is another factor contributing to high inflation. all in all, as i mentioned, the inflation spike is proving highly persistent and has also broadened. high inflation is causing a rapid loss of purchasing power and deteriorating consumer confidence in the euro area. both households and businesses are facing a highly uncertain fo r further details, see the ecb press release “ mo netary po licy decisio ns ” of 27 octo ber 2022. environment due to the consequences of the war in ukraine and, in particular, the energy crisis. these factors, and the progressive tightening of financial conditions as a result of the monetary policy response from the main central banks around the world, are weakening economic activity quite rapidly. indeed, euro area gdp growth moderated significantly in the third quarter of the year, and recent data point to a possible contraction of economic activity in the fourth quarter. nevertheless, the labour market continued to perform well in the third quarter, and the unemployment rate remained at a historically low level. moreover, energy commodity prices in wholesale markets have moderated recently, mainly reflecting the worse economic prospects at the global level. in europe, the extraordinary spike observed in natural gas prices over the summer has significantly corrected. this reflects a reduction in demand, mild weather, high storage levels and the european commission ’ s recent proposals to address high gas prices in the european union and to ensure the security of supply during the winter. in addition, over the past few months supply chain bottlenecks have eased and freight costs have declined sharply. 2 slower growth, the recent correction in energy commodity prices and the improvements in global supply chains will help ease inflation. however, according to our forecast, inflation will stay above the target for an extended period. and, more generally, the longer inflation stays at high levels, the greater the risk of a de - anchoring of inflation expectations or the materialisation of second round effects through wages or mark - ups. on the basis