policy rates, particularly in the euro area ( slide 9 ). the trend line is much flatter than in the past – that is, markets expect less monetary policy tightening for each incremental improvement in the medium - term inflation outlook. such correlation patterns do not imply causality. but they do suggest that the market may have started internalising our new forward guidance, especially regarding the conditions that we need to see to start raising policy rates. 3 / 5 bis central bankers'speeches first, we want to see inflation reaching 2 % well ahead of the end of our projection horizon and we want it to remain at 2 % thereafter. and, second, realised progress in underlying inflation needs to be sufficiently advanced to be consistent with inflation stabilising at 2 % over the medium term. in other words, given the significant uncertainty surrounding inflation projections many years out, we want to see clearer signs that inflation is reliably moving towards our 2 % target. this will imply a more patient reaction function, consistent with the previous scatterplot analysis, and hence may also imply a transitory period in which inflation is moderately above target. two additional developments corroborate the view that investors have started internalising our more patient reaction function. one relates to the distribution of risks around the future interest rate outlook. after the announcement of our new strategy and forward guidance, the risk distribution around the future evolution of the 3 - month euribor has been truncated from the top, meaning that investors have effectively priced out contingencies that foreshadow a very steep increase in policy rates ( slide 10 ). such expectations are consistent with our new september ecb staff projections, which show that inflation is expected to remain below our 2 % target in the medium term. the second development relates to the distribution of risks around the future inflation outlook. since the beginning of the year, the balance of risks priced in by investors has noticeably shifted to the upside. option prices, for example, currently suggest that, in the united states, the market attaches a probability of around 80 % that inflation over the next five years will, on average, be above the federal reserve ’ s 2 % aim ( left - hand chart, slide 11 ). 4 in the euro area, the priced - in probabilities are smaller but have also increased visibly to nearly 40 %. this is also increasingly reflected in the euro area bond market. the compensation that investors demand for uncertainty around the future inflation outlook – the inflation risk

of short - term interest rates, or, alternatively, that other factors are holding yields down. the delta puzzle the factors that may explain current bond market conditions remain the subject of intense market speculation. i would like to focus on two such factors pointing in different directions as to whether current yield levels constitute a puzzle or not. the first relates to the possibility that the market may be overestimating the risks to the global growth outlook from the spread of the more contagious delta variant. our analysis shows that, in the united states, adverse macroeconomic shocks – in all likelihood related to covid - 19 – have systematically suppressed long - term interest rates since about may ( left - hand chart, slide 5 ). to some extent, this seems surprising. there is no doubt that the delta variant has started affecting mobility and business conditions in contact - intensive services industries in some regions, especially in the united states. it is also likely that the delta variant is aggravating and prolonging supply bottlenecks ( right - hand chart, slide 5 ), also because vaccination rates in emerging economies remain low. all in all, the delta variant has many characteristics of a genuine supply - side shock, raising prices and lowering output. but market analysts ’ growth expectations suggest that this shock is widely perceived as being short - lived. for example, consensus economics ’ expectations for real gdp growth in 2022 have remained unscathed by the renewed surge in infection rates, both in the euro area and the united states ( left - hand chart, slide 6 ). these expectations have continued to increase and have settled at levels well above estimated potential growth rates. a recent survey among european fund managers showed that only 3 % of investors consider covid - 19 as a significant risk to the growth outlook. 2 high and rising vaccination rates in advanced economies are expected to make growth increasingly immune to economically painful stop - and - go disruptions. 2 / 5 bis central bankers'speeches similarly, credit rating upgrades have recently outpaced downgrades by a substantial margin on both sides of the atlantic ( right - hand chart, slide 6 ). in europe, the pace of upgrades has even accelerated compared with the second quarter. the delta explanation becomes even more of a puzzle when considering recent developments in stock markets, which have continued their undeterred rally over the summer ( left - hand chart, slide 7 ). today, the euro stoxx is some 15 % above its pre - pande