July 1, 2025 • 43 mins
Bloomberg's Francine Lacqua moderates the Policy Panel at the ECB Sintra Forum. The panel includes:
- Andrew Bailey, BOE Governor
- Christine Lagarde, ECB President
- Jerome Powell, Fed Chair
- Chang Yong Rhee, Bank of Korea Governor
- Kazuo Ueda, Bank of Japan Governor
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:07):
Right now, we're going to go to CenTra in Portugal,
where the world's top central bankers are gathering together for
a discussion with Bloomberg's Francine Lacua.
Speaker 3 (00:16):
We had let's listening.
Speaker 4 (00:17):
Today this morning. Consumer prices rising some two percent from
a year ago, up from AYE one point nine percent,
but then the tariffs still loom large. So how do
you see that developing?
Speaker 5 (00:28):
Well, first of all, I would note that we are
at two percent and this is the latest reading. This
is also the target that we have had, and this
is the projection that our staff is indicating for the
medium term, which is exactly what we had anticipated. So
I'm not saying mission accomplished, but I say target reached. Okay,
(00:49):
And I think we should start by recognizing that we
faced massive amount of shocks, compounded shocks occasionally, and we
are through this inflationary process that we have conducted over
the last two years. And yes, we are facing a
lot of uncertainty. Yes we are facing the risk of
(01:10):
fragmentation increasing, and yes we are facing political developments that
are worrying generally, but that also are causing two side
risk to inflation, So we have to continue to be
extremely vigilant. We have to continue to be committed to
delivering on our target, and I think we are at
(01:33):
this point in time in a very good position to
do that. So we are well equipped to navigate the
tormented waters that we should anticipate.
Speaker 4 (01:42):
Chair Powel. Tariffs are not yet showing up in inflation.
Is this forcing you or your staff to actually rethink
what the models say about how much the tariffs will
ultimately through some of the final prices.
Speaker 2 (01:55):
So thank you Frantz and Christine. Thank you to you
and your colleagues for putting on another great conference here today.
Speaker 3 (02:00):
It's been a pleasure. I guess I.
Speaker 2 (02:02):
Would start, if I may, by saying that the US
economy is in a pretty good position. Inflation has come
down close to two percent, we're two point three headline,
two point seven core. The unemployment rate is at four
point two percent, so we're healthy overall. The if you
look ignore the tariffs for a second, inflation is behaving
(02:23):
pretty much exactly as we as we have expected and
hoped that it would. We haven't seen effects much yet
from tariffs, and we didn't expect too by now we've
always said that the timing, amount and persistence of the
inflation would be highly uncertain, and it's certainly improved that.
Speaker 3 (02:39):
So we're watching. We expect to.
Speaker 2 (02:42):
See over the summer some readings higher readings, but we're
prepared to learn that it can be higher or lower,
or later or sooner than we'd expect it.
Speaker 4 (02:53):
But a chair with the fen have cut more by
now if it weren't for the tariffs.
Speaker 3 (02:58):
So I do think that I think that's right.
Speaker 2 (03:00):
Where in effect we went on hold when we saw
the size of the tariffs and where and essentially all
inflation forecasts for the United States went up materially as
a consequence of the tariffs. So we didn't overreact. In fact,
we didn't react at all. We're simply taking some time.
As long as the US economy is in solid shape,
(03:20):
we think the prudent thing to do is to wait
and learn more and see what those effects might be.
And again they haven't really shown up, and you know,
so we're for now, we're.
Speaker 4 (03:31):
Waiting, Governor, I mean South Korea's economies of course, Highland
reliant on trade, putting aside the deals that each government
could do can strike with the Trump administration, what can
central banks in your position do to shield economies from
the impact of trade tariffs?
Speaker 6 (03:47):
Actually about the tariff's impact on infreation. How current infreation
is well stabilized around two percent, and we believe tariff
tends to be defractionally rather than infretionary full reasons One,
it is created not likely to use retalitary tariff. Second, we
import twenty two percent of our import from China and
(04:10):
recently export price of China has been falling at five
percent a year for several years, and we believe that
it will continue to do so. And at this moment, our
growth rate is zero point eight percent, which is well
below our potential growth rate, so aggregate demand pressure is
much lower. So our problem is not the infration itself,
(04:32):
but the gross impact of tariff.
Speaker 4 (04:34):
So what does that mean you'll do going forward?
Speaker 6 (04:37):
Actually we are we have been an easying cycle and
we cut our interest rate one hundred pp from last October,
and we will continue to be in an easying cycle
given our growth rate. But recently financial stability risk has
been rising, especially housing price in the metropolitan area is
increasing very fast. So we are keeping eye on this
(04:58):
financial stability risk. Deciding the pace in the timing of
the photocots.
Speaker 4 (05:03):
Governor Billy, you've taken the view that the latest rises
inflation in the UK will be transitory. Why are you
so confident that that inflation will fall back?
Speaker 7 (05:12):
Actually you've detected. I've tried to avoid using the translatory
work because oddly enough it has a bit of a history.
But to be serious, obviously, any increase in inflation is
an increase in inflation. Sorry to state the obvious. The
reasons it's gone up is really entirely due to so
called administered prices. Now that's say, that's an increasing prices,
(05:36):
don't get me wrong, But it's not telling us much
or anything about the context of the economy. In other words,
it's not telling us anything really much about the balance
of supply and demand in the economy. So I think
the key judgment for us is are we going to
get second round effects from this this pickup? And of
course it's nothing like the pickup with a few years ago,
just just to be clear, and my judgment is at
(05:57):
the moment is that the context is different. That we
do see evidence and I see some signs of softening
and the economy see signs of softening and the labor market.
We are going to have to see those come through, though,
I mean come through into into prices. I think we've
still got to see the evidence and prices. But that
background context allows certainly me to say, look, I think
(06:18):
the direction continues of interest rates continues to be downwards.
Speaker 4 (06:23):
When you look at all of the uncertainty. Again, is
it it's a bold call given what happened to oil
prices and trade negotiations.
Speaker 7 (06:31):
It is. I mean I would say two things on that.
Speaker 5 (06:34):
One.
Speaker 7 (06:35):
I think, as others have said, it's probably Jay was saying,
I think it's a bit too soon, I think really
to see the price effects coming through from from from
the trade and tariff's action. We've made a point of
saying also that I think, as Christine was saying, that
these are two sided. They could go either way. Could
be weaker demand, we could see some supply chain disruption.
And the second thing, of course, is that you know
(06:57):
some of these effects if you take the oil price
story for I mean, you know it's gone up, it's
come down all since our last meeting, effectively, so you know,
we always reach for the lexicon at this point. I mean,
we've added unpredictability to uncertainty. I was slightly amused at
the introductory film this morning with Christine saying all these words,
because it's true, because not only are we getting uncertainty
(07:18):
in the sense, you know, the range of outcomes, but
unpredictable in the sense that if you get things like
the tarifaction. History really isn't a particularly good guide to that. Actually,
you can't really draw much from the past on that.
Speaker 4 (07:30):
Now, Governor Uta, you're in a slightly different situation right Japan.
CPI has stayed above two percent for three years. Now,
what do you see as a fundamental changes in your
economy that make inslation more persistent?
Speaker 8 (07:44):
So let me say to put it simply, as you say,
headlining in version has been above two percent for almost
three years, while what we call underlying inversion, who is
still somewhat be a little two percent. That's the situation
we are in.
Speaker 7 (08:01):
But if I could.
Speaker 8 (08:02):
Decomposite father, there's probably about three components to it. First,
there's underlying inflation dictated by wage price dynamics, whereby increases
in prices affect wages, which further affect prices. Helped by
(08:23):
a resilient domestic demand this component is has been going
up slowly, but as I said, it's you're somewhat be
able to present. Then there's going to be perhaps a
second component, which will be the expected negative effects of
possible types on uh the economy and prices. We are
(08:47):
expecting this to take place, but we haven't seen that yet.
There's a third component, which is domestics of partial generated
by increases in food prices. This component accounts for about
fifty percent of the headline inflation we've got at the moment.
So letting these three, we think the first component and
(09:12):
the second component will produce a slow increase in underlying
inflation towards two percent by and twenty six or twenty seven.
The third component food inflation is going to subside toward
the year end. So but we will be closely monitoring
interplace between these three forces.
Speaker 4 (09:35):
But Governor, how do you trade concerns the day after
President Trump threatened Japan with more terrorifts.
Speaker 8 (09:42):
Well, it's it's being negotiated by our minister in charge.
So I'm trying to avoid making any specific.
Speaker 7 (09:52):
Comments on this.
Speaker 4 (09:54):
So let me just ask you what will be the
key trigger for Japan for deciding for the rate hikes.
Speaker 8 (10:02):
Okay, as I said, it will depend on the route
if strength of the three eye infashion dynamics I was describing,
and we need some more information to determine determined.
Speaker 4 (10:15):
Land, President Gard, When you look at rate cuts, I mean,
are we gonna where do you see actually the ECV going?
You're in a pretty comfortable position right now out of
all the Central Banks.
Speaker 9 (10:27):
Data, I will tell, so I think we are we are.
Speaker 5 (10:32):
We are determined to continue to be data dependent, to
decide meeting by meeting, and to not commit to any
particular rate path. That's the that the docs are. And
we're very lucky because we have just completed our strategy assessment,
which really gives us a good framework and good good
strategy lines within which to operate. But that those three
(10:55):
aspects that I have mentioned, data dependent, meeting by meeting,
no commitment to any particular rate path are constant in
that ongoing strategy based on what we have concluded actually
yesterday Chapel.
Speaker 2 (11:10):
So from our standpoint, as you will have seen, a
solid majority of f HOMC participants do expect that it
will become appropriate later this year to begin to reduce
rates again.
Speaker 3 (11:23):
And so.
Speaker 2 (11:25):
And that will depend though, as Christine just mentioned, on
the incoming data, will be monitoring particularly what does show
up in terms of inflation or what does not show up,
and also carefully watching the labor market. You know, we
watch very carefully for signs of unexpected weakness. We see
a gradual calling, but we don't really see that yet.
(11:46):
So those are the things will be watching. But as
I have mentioned, a majority of us do feel it
will be appropriate in the remaining four meetings of the
year to begin to reduce rates again.
Speaker 4 (11:55):
Madame Laguarde, the euro has also served about twelve percent
against the dollar so far this year. Are concerned that
its strength runs counter to your efforts to also loose
in financial conditions.
Speaker 5 (12:06):
You know, I'm not going to comment on the exchange rate.
We take it into account for purposes of our projections.
Obviously it as an impact, but it's a reflection of
the market conditions and assessment.
Speaker 9 (12:19):
It's also a reflection of the strength of our economy.
Speaker 5 (12:22):
But there has been a clear appreciation relative to the dollar.
Depending on how you look at it, it's eye the
depreciation of the dollar and appreciation of the euros, and
there might be a bit of both in that particular case.
We're also looking at the movement the flow of capitals
and the attractiveness of Euro denominated assets, which is also
an interesting phenomena that we've observed lately.
Speaker 4 (12:44):
Trip, I mean, is it fair to say, I know,
you know, nothing is guaranteed. Number one, we all know
this barring a real surprise. Is July just too soon,
too seriously even considerably?
Speaker 3 (12:54):
Yeah, I really can't say.
Speaker 2 (12:55):
It's going to depend on the data, and we are
going meeting by meeting. I mentioned you know how I'm
thinking about that, but I wouldn't take any meeting off
the table or put it directly on the table. It's
going to depend on how the data evolved.
Speaker 4 (13:10):
Governory, what's the biggest risk stemming from protectionist trade policy?
Actually for the global economy and for South Koreas, can
you see the biggest risk stemming from trades and protectionist measures?
Speaker 6 (13:23):
You know, the career has quite an export driven economy,
so whatever, the global fragmentation is a serious impact, not
only direct impacts through the US tariff, but also in
direct impacts through China, Mexico and Canada, and we usually
can it really depends on what's going to happen to
July nine. We are actually waiting for the research, but
(13:44):
we don't know what was going to happen. But for example,
like if the tariff goes back to twenty six percent
Italier tariff that was announced in April second and then
also with a lot of sexual tarifficial effect our economy,
aluminium steal and cars, you can easily say that it
has impacted larger than cost one percent. You our GDP
(14:08):
glow straight and depending on how long it last, I
think we have to adjust to the new supply chain,
so the impact will be larger. But I hope that
scenario one come.
Speaker 4 (14:20):
What is the most concern for the Bank of Korea.
Is it installing South Korea exports slow down and global
trade or a downturn in the US economy.
Speaker 6 (14:29):
It's all linked, right, It's all linked right, So it's
a global it can slow down. And one thing I
mentioned some negative sizes only but one pative side I
don't know is a path or not. But Korean companies
has been preparing for the supply diverscation a long time
ago before the tariff US tariffs start to because you
(14:50):
have some issues with China, and then also Chinese industry
has become very competitive, so we had to relocate our
looks insight from China to elsewhere. So relatively speaking, you
are well prepared. And second, still good thing is that
we have some strong industries such as a semiconductor, which
benefit from the AI technology development. So I hope that
(15:15):
we can manage it. But on the other end, given
the just we'll get the sheer size of the export dependence,
we will be significantly.
Speaker 4 (15:22):
Affecting govern Really, do do you think interest rates will
be closer to three or four percent at the end
of the easing cycle given all of the inflation and
trade dynamics.
Speaker 7 (15:31):
That's a subtle way into the ass star question. Actually,
I would detect. So I'm fairly cautious about the whole
discussion of the level of our star and therefore sort
of where rates are going to reach in the cycle.
There is huge uncertainty around it. What I think is
(15:52):
important and what we spend our time looking at is
how restrictive is policy both now and going forwards, And
our staff do a huge amount of work on that
front to judge the restrictiveness of policy in the current context,
and it's how restrictive it's going to be. Looking forwards.
If you project forward with the market curve and the
(16:12):
assessment we've got the reader is the policy is, policy
remains restrictive. It will continue to be restrictive, although the
level of restrictiveness will come down over time, which is
what I would expect, and I would expect that level
of restrictiveness to come down to a point where it
goes more neutral. But it's saying I think you have
to judge that in context, you know, just to give
(16:33):
you an example of that, in the UK economy, the
level of household and corporate debt in the UK economy
is actually lower than we would have expected it to be,
but based on past experience. So again that feeds through
it too, just how restrictive policy is at a given
interest rate. It's somewhat less restrictive probably than it would
have been historically.
Speaker 4 (16:54):
Could I ask all of you actually thoughts on the
neutral rates your power.
Speaker 2 (16:59):
That that's a the literal rate, So I think you know,
there are countless empirical and theoretical ways to derive it.
At the end of the day, I think I like
to look at the economy and ask whether our policy
stances having the effects we expect and want on the economy,
and to me, I would say we're somewhere probably modestly
(17:20):
restrictive at this level, and by some formulations we're more
restrictive in that. But if you look at the economy,
growth has been solid, the labor market is solid and
still at historically lower levels of unemployment. It's not an
economy that feels like it's suffering from very tight monetary policy.
But I would say that policy is still restrictive.
Speaker 4 (17:42):
President laguard.
Speaker 5 (17:45):
I would say that it's a nice concept, it's interesting,
and many of the terribly talented and brilliant economists in
this room actually are delighted with discussion about the neutral rate.
But honestly, as we're getting, you know, closed to target
and to where we should be or are where we
should be, and I don't want to past judgment on that,
(18:06):
I think that discussion becomes less relevant. I think what
our staff at the CB measures leads us to believe
that it is higher than where it was before the
Great Financial Crisis, but it's relative relatively low as well, compared,
for instance, with what the US neutral rate is at
(18:27):
the moment. But it's in a way, it's a bit
of an illusion to discuss that at the moment, because
the neutral rate is normally defined in a world where
there is no shock, where you have perfect equilibrium.
Speaker 9 (18:38):
Now are we in a world with no shocks at
the moment? I don't think so.
Speaker 5 (18:42):
So it's nice, nice to have as a concept, nice
to elaborate on it, nice to do research on it.
But to use it at the moment where we are
as a guiding principle to where we should be, I
don't think is particularly appropriate.
Speaker 7 (18:55):
And you bery well, that sort of continues what I
was saying earlier. Again, I don't use it as a
sort of a guide to where policy should be. But
I think this whole concept of restrictiveness is of course
critical to our judgment, because that's critical to the transmission
mechanism of policy, which we have to judge every time
we meet. So that's a judgment that, in a sense,
(19:16):
we renew every time every meeting we have. I think
I'd rather agree with what Jay was just saying. I
think in our case, policy is restrictive at the moment,
it's going to become less restrictive based on the curve
that we've got in the market. That's what I would
expect we will judge it each time.
Speaker 4 (19:34):
Governory similar, I have nothing to it. How would you
see it? Governor?
Speaker 3 (19:39):
You aida, yes.
Speaker 8 (19:41):
So we also estimated something like the neutral rate the
number of times, but the range of estimate is very wide.
So but at least we think we can say, well,
the current rate.
Speaker 9 (19:55):
Is below neutral.
Speaker 8 (19:57):
But other than that, I would refer to what Jay
said you're a two a girl in a Jackson Hall conference,
which was like, we are guided by our staff, but
under cloudy.
Speaker 4 (20:11):
Sky, President, can you talk to us about scenario and
why this is, you know, because of the sharks and
actually the changes that are going very fast, why scenarios
make more sense as a template of the economy.
Speaker 5 (20:25):
Okay, So this is a topic that we have largely
debated as part of the strategy assessment that we conducted
in in the last year. And I think, you know,
in fairness, the baseline, which is, you know, the essential
projection on which we work and we determine our monetary
policy stance, holds and is decisive in our consideration. But
(20:50):
at the same time, our staff has I wouldn't say forever,
but as long as I know myself, has always conducted
scenario analysis, sensitivity analysis in order to arrive at the
most solid baseline. It is probably the case that we
will do more of it more systematically, that we might
(21:11):
publish more often than we have. We have published, I
think in the last few years, for in four circumstances
we have published scenario analysis. The invasion of Ukraine was one,
COVID was one, the oil crisis as well, and the
tariff threats, so all those were exogenous factors that we're
sort of hitting our screens. I think we might do
(21:32):
more scenario analysis that will be looking at the longer
term trends that will affect our economy and that will
inform and strengthen our baseline, enhance it probably in its reliability.
So that's what we are debating at the moment. How
this is built, what assumptions we make, what choices are
(21:54):
decided in terms of publishing, will be determined by the
Governing Council.
Speaker 9 (21:59):
In good intelligence, we stuff j POW on scenarios.
Speaker 2 (22:03):
So for many years we have used scenario analysis internally
and I personally find it very useful. I think many
of my colleagues do too. You have just many different
kinds of scenario with six or seven at every FMC meeting.
They're often the topic of discussion among governors, and at
the meeting we have not taken a step of a
(22:24):
step of using them as a public communications device, and
that's a big difference. So that's one of the things
we're going to be talking about this fall. We will
wrap up the first part of our framework review, which
is the big consensus statement our monetary policy framework we
expect to by the end of the summer, and then
we're going to use the fall meetings to look at
(22:44):
communications ideas, and that's one of the ones.
Speaker 3 (22:46):
We'll look at.
Speaker 2 (22:47):
I will say it has a lot of appeal and
a lot of questions, and so my expectation is we
know if we're going to do something in that area,
it's going to be putting a toe in the water
and not just throwing ourselves in, you know, over Niagara
falls on it. So I can imagine a situation where
we would try that in a particular circumstance. But for us,
(23:09):
we're just going to do the work and understand it
as many other central banks are doing now.
Speaker 6 (23:15):
UH in case, we use the scenario analysis in our
risk management section as a as a kind of representing
the table risk. But I have to read the EACV report.
But if we have to move that section into the
more focusing section for public communication, I wonder whether it's
going to be easy to get some consensus. It's a
(23:36):
scenario we have to do it among our probably members
in the monetic policy meeting. So because that scenario and
the underine assumption maybe much harder to to communicate to
agree among the members. And also it's a specific to us.
But how I can differentiate the previous approach of risk
management section to the focusing that I have to think
(23:59):
about what we have to do.
Speaker 7 (24:01):
So I had two things I would add, and it's
very much in the same spirit as colleagues. One, we
introduced two scenarios, and the May Round and the May Report.
For me, they were very useful and they were either
on either side. They weren't symmetric, by the way, but
they were oither side. For me, they were very useful
(24:23):
in terms of my decision making because they helped me
to answer the question, given the uncertainty if we're wrong,
if I'm wrong in my judgment, how wrong am I
going to be? You know, do I think I'm going
to be? And what would be the consequences of that,
and you know, what would we then have to do
to deal with the moon? Is it manageable? And that
was helpful, and then I think the question is coming
(24:44):
back to know what Day was saying in terms of
public communication. I mean, this is the big step, I think,
and it is challenging. I tell you why, because I say,
it's quite a lot. We make a lot of conditional statements.
You might have detected this in all the interview, the
many interviews you do, and don't I'm not I'm not
making a personal comment now, Francine, but yeah, a lot
of those conditional comments get immediately translated as unconditional comments.
(25:09):
It's sort of life.
Speaker 4 (25:10):
We're quite careful.
Speaker 7 (25:11):
But yeah, no, no, it's not personal. You know, this
is the general point. And so so the reason I
say this is that if we yeah, and that's about
that's about the central case. By the way, so if
we introduce scenarios, you know, that's a message to us
that you're going to have to do this very carefully
in that world because to get the point across about
you know, there is always a there is always uncertainty,
(25:32):
there is always risk. How you calibrate those and how
you as Jay was saying, how you communicate those publicly.
It's critical but quite pretty challenging, frankly in that in
that environment.
Speaker 8 (25:42):
Governor you Ina, Yes, we also carry out many simulation
exercises about scenarios, but we have not, as far as
they know, published them. We do discuss in our quality
wards qualitatively what risks we are we have in mind.
(26:06):
On top of what I would say in a very
rough way, we are carrying out something like a risk
management approach to management policy making, which is probably a
bit similar to what Christine was talking about yesterday. I
(26:28):
can't come up with a good example, but so risk scenarios,
thinkings about tail risks sometimes do affect our monitor policy prinking.
Speaker 4 (26:38):
Can I ask you all about the dollar? Everyone's favorite subjects,
So when you tune out noise right of the past
few months, one has really changed about the dollar, Governor,
We are we really seeing some sort of paradigm shift
in the status as a reserve currency. That means historians
will look back on twenty twenty five as some sort
of pivotal year.
Speaker 6 (26:57):
I don't think so, especially in keys of Korea. Our
Korean one has appreciated significantly in the last two months,
but I think it's mostly due to the very unique
situation that we had, and we had a very unexpected
unnecessary martial law declaration in last December, and after that,
is this political risk, together with the slow down our economy,
(27:20):
really make Korean one depreciate much more than our fundamentals explains.
So in some sense the appreciation that we have observed
in the last two months in some sense normalization of our.
Speaker 7 (27:33):
Our currencies.
Speaker 6 (27:34):
And as for the kind of long term shift of
the Dalla sentiment, we have discussions, but it looks like
people are talking about it, but at this moment they
keep the Dallas sets while they're increasing the Hatch ratios.
So at this moment, I think the lion's share of
the impact VI support showed this one is impact is
mostly moving from the unhatchy to the hetchy positions. So
(27:57):
we have to see what will happen.
Speaker 7 (27:59):
In the future. Governor baby Well, I'd say two things.
First of all, I think that it's important to bear
in mind what the sort of the definition of a
reserve currency is and how it's evolved over many years.
So I, like Jenerally, I don't see the being a
sort of a major shift at the moment, not least
(28:21):
because in this day and age, the definition of a
reserve currency has as much to do with the supply
of safe assets into the market that can be used
for all the purposes of collateral and security, that they
are as much about as much as it is about
a sort of pure exchange rait. So I think we're
a long way off that sort of that change happening.
The second thing is going back to Someny Christine was
saying earlier. I mean, when we look at financial conditions,
(28:44):
I wish we do, of course, but I do think
particularly I mean I always believe this, but I think
it's even more relevant to the moment to unpack a
financial conditions index. And the reason I say that is
because we've seen a breakdown in the correlations of the
components of a financial conditions index. So you look at
sort of bond you're you look at exchange rates, you
look at equity risk premium for instance. Those correlations are
(29:05):
not the ones that we've tended to see established over time,
so you have to look at it much more carefully.
There are stories, to my mind about each of the
components of that. So when I look at the exchange
rates you know, I look at it very much on
that basis. I don't think it's sensible to sort of
pack it all up as we normally wouldn't say it's
all behaving normally because the correlations are.
Speaker 4 (29:27):
Not actually governor ueida. I mean, there's also many colleagues
at central banks I guess around the world are building
up gold reserves. Is that the only real alternative to
the dollar?
Speaker 8 (29:40):
I think it's up to a certain extent, what areas
like you're on or China would do in terms of
improving the efficiency or convenience of their currencies, Like the
kinds of things we were discussing this morning, capital markets, integration,
(30:02):
and these things will change the degree to which the
role of the data may decline are.
Speaker 4 (30:10):
In the future, I mean the dard.
Speaker 5 (30:14):
You know, I think I don't know if twenty twenty
five will be a pivotal year. I would tend to
think that yes, it might very well be, but for
a major change to occur will take a lot of
time and will require a lot of effort. And I
(30:35):
completely agree with the points made by Andrew about the
dichotomy that we're seeing at the moment, and that might
be an indication of the fact that investors are looking
at options. This is what investors are saying, They ask questions,
they seek alternatives, and whether that translates into a general
lack of confidence that will be further fueled by more uncertainty,
(30:59):
more and predictable.
Speaker 9 (31:00):
Did you a bit of a jump.
Speaker 5 (31:01):
In the unknown on several fronts, not just monetary policy,
not just even the economics, but beyond that in terms
of security at large, for instance, I think remains to
be seen. It's not going to happen just like that overnight.
It never did historically. There's no reason you should know,
but there is there is clearly something that has that
has been broken, and whether it is fixable or whether
(31:23):
it is going to continue to be broken, I think
the jury is out on that front.
Speaker 4 (31:27):
A trepal. How do you think we'll look back on
twenty twenty five?
Speaker 3 (31:30):
No one, here's me.
Speaker 2 (31:34):
How we're going to look back on twenty twenty five?
Speaker 9 (31:36):
Yeah?
Speaker 4 (31:37):
How will historians look back on this year? Is it pivotal?
Speaker 3 (31:41):
It's clearly an important It's an important year.
Speaker 2 (31:45):
There's a there's a lot going on, you know that
with trade, and I think my hopeful that will look
back on it as a year that were we significant
successfully challenged some significant economic changes, and you know our
job is to make sure that that.
Speaker 3 (32:00):
Is the case.
Speaker 4 (32:02):
You get attacked by the president a lot on a
personal basis, does it make your job harder?
Speaker 3 (32:08):
I'm very focused on just doing my job.
Speaker 2 (32:10):
I mean, there are things that the things that matter
are using our tools to achieve the goals that commerce
has given us maximum employments, price stability, financial stability, and
that's what we focus on.
Speaker 4 (32:21):
One I'm a dumb laguarde. If you were in the
same position as Chair Powell, would you do anything differently?
Speaker 5 (32:41):
I think I speak for myself, but I speak for
all colleagues on the panel. I think we would do
exactly the same thing as our colleague J.
Speaker 9 (32:48):
Powell does the same thing.
Speaker 1 (32:50):
Yeah right, yes, Governor.
Speaker 4 (33:07):
Is the rest of the world decoupling from America but
pulling tighter elsewhere. How do you see fragmentation happening?
Speaker 7 (33:15):
Well, fragmentation were it to happen, and my view is
bad for activity in the world economy, no question about that.
I mean, if we reduce the openness of the world economy,
that will be bad for activity in the world economy. Now,
I temper that in one respect because obviously we have
learned a lot about the robust list of supply chains
(33:35):
over the last you know, five years, and it is
a course appropriate that there will be adjustments to that.
But if we see a breakdown of the openness of
the world economy sort of beyond that, beyond that sort
of resilience that we do see as needed, then that's
that's bad for activity, it's bad for the world economy,
and that I'm afraid it's something that I think we need.
You know, we need to be very clear. I've said
(33:57):
a number of times that there are reasons why this
has happened. It's not right to just go around saying
just you know, this is all the wrong, wrong, wrong,
you know, there are no reasons why this is happening.
What I think is very important is that we get
back to a governance of the world economy where we
can address these issues in the appropriate multilateral fora and
(34:19):
get to the question of what lies behind these issues,
what's at the root of these issues, what exactly are
the issues, and what do we do about them? And
I can't emphasize this enough that I think it's an
obligation for all of us who are obviously very heavily
involved in the governance of the world economy. We've all
got very big responsibilities to say that is our duty
(34:41):
to get back and to the process of saying what's
caused this, and what do we do about it? And
what do we deduce are the underlying issues and how
do we address them, because otherwise, say, fragmenting the bod
economy is a bad outcome.
Speaker 4 (34:54):
But what kind of fragmentation would it be? Is it again?
You know, are you fearful that the world is splintering
irrevocably or is there a pool that's.
Speaker 7 (35:03):
Just moving well? I think if it was a breakdown
of trade in the world economy, obviously exactly how that
would manifest itself would remain to be seen, but it
would be running against a long period now where we've
been building the resilience of trade in the world economy,
we've been building openness. But as I said, I want
to I want to sort of temper that by saying, look,
(35:26):
there are issues. I don't think we should say there
are no issues. You know, this is all made up.
There are issues and we need to we need to
address what they are and work them out. But we
need to do that in the context of a commitment
to a robust, open world economy.
Speaker 4 (35:40):
Governor, as the only governor here representing a non reserve
currency country, how concerned are you about fragmentation of the
global financial system and the risk at the end of
the day that the US may be willing less willing
to provide dollar liquidity in a future financial shock.
Speaker 6 (35:57):
I think I mentioned that we are quite vulnerable to fragmentation,
but in reality, as a small country, it's a pity
that we can raise our voice, but in reality we
cannot change the course. So we have to probably take
it as an environment and to adapt it. What matters
is we talk about economic fragmentation, but for country like us,
(36:20):
the most serious issues combined with security, and for that issue,
let me stop here because I don't want to go further.
But as for the dollar equity support, as demonstrated during
the global financial crisis and pandemic period, the standing dollar
facility sub lines with five international financial centers and the
(36:42):
nine a temporary shub lines for the nine non reserve
currencies that was crucial in restoring the stability in the
global world. And if another global dollar strategy hits, I
believe that the US, FAD will extend the lines again,
which is very important. And but one other problem for
(37:04):
country like US is we know that the US provide
air lines as wrong as there is a global but issues,
what happened if there is our own problem and then
there's no global Our understanding is that FAD cannot extend
those subt lines in that case and we have to
self defense ourselves. That is why I think they're having
(37:27):
a sufficient level of reserves is very important. And listen
to you. Thanks to the introduction of the FEMA be
for postility by the FAD, actually the reserves become much
more effective tool to defend ourselves.
Speaker 4 (37:41):
Repower on fragmentation, Well, I.
Speaker 2 (37:44):
Guess I'll just agree with what Changan said, which is
our point out that our nothing has changed relative to
our swap lines. We still have the same authorities and
we're still prepared to use them in situations where it's
within our legal authorities and where we think it makes sense.
So that is and we know, we're aware that that's
a a big contribution that we can and and do
and will continue to make to the global financial stability.
Speaker 4 (38:07):
Goodnu Wada h how much do you think about fragmentation
and the impact that's could have on Japan.
Speaker 7 (38:13):
See.
Speaker 8 (38:13):
On the trade side, I think a lot about what
will happen to Asia, even Asia excluding China so UH.
This will depend on the relative tari frates imposed on
the region relative to to China or relative to other countries.
Speaker 9 (38:37):
But there's UH.
Speaker 8 (38:41):
Fairly a strong intra regional trade UH taking place UH
during the last decade or two. Also there's UH uh
new UH countries like India growing at very high speed.
So I I hope there's a residly and sufficient resilient
domestic demand in the region to keep the.
Speaker 3 (39:06):
Energy of the region alive.
Speaker 8 (39:10):
On the financial side, I don't have much to add
to a lot of other people have said, but it
would be important to keep trying a multi layer or
the approach to things like swap lines we have chen
my initiatives in Asia. Doing something similar or continue to
(39:31):
do something similar will be important.
Speaker 4 (39:35):
You've often spoken about the role that Europe could take
in a fragmented world. How do you see that developing
in what kind of timeframe?
Speaker 5 (39:44):
Well, I think you know Europe has witnessed in the
last four years in particular, well since nineteen twenty sorry,
twenty twenty two, in particular, the last three years major
challenges to its way of doing business, to the assumptions
that it has made about security, about supply, about destination.
(40:05):
Whether you look at what the horrible Russian invasion of
Ukraine has precipitated and how that has impaired the sentiment
of security that we in Europe had and the sentiment
that we could forever rely on the protection of others,
that has been impaired significantly. When you look at the
energy supply on which some of the European countries in particular,
(40:27):
but most of us have relied upon, namely access to
reasonably cheap oil and gas supply from Russia, that has
been impaired significantly, and we had to find the resources
to respond to that. And whether you look at the
business model of some countries where destination was inevitably China
in the main, that has already been challenged as a
result of the fragmentation that is not just a risk,
(40:49):
but which has happened. If you combine that with the
technology risk that we could all be under, either because
of political determination or because of of supply, whether it's
on the front of microships or rare earth. I think
we are in a situation where many of the assumptions
have been shaken up and where we collectively are on
(41:11):
the cusp of I hope, this is my hope of
you know, better taking hold and control of our destiny
by making significant structural efforts to you know, be more independent,
be more proactive, be more autonomous in all these different dimensions.
Speaker 9 (41:33):
Is it going to happen overnight?
Speaker 5 (41:34):
Yet again, no, because on some of those fronts, it
takes time, It takes investment, it takes political determination, it
takes momentum. And you know, from a pure sort of
as President of the ECB, what we can do on
the monetary front is to deliver on our mandate of
providing price stability so that the fluidity of factors that
(41:55):
is needed both in terms of capital in terms of labor,
can rest assured that price stability will be within our
limit under strict commitment to deliver on our target of
two percent medium term. But yes, I think it's a Historically,
I believe that in a few years time we will
look at twenty five of those those latest three years
(42:19):
as significant change in the way in which we conduct
our life, our business and develop Europe.
Speaker 9 (42:25):
And I hope for the better.
Speaker 4 (42:27):
Ja Powell. Last year in Cintron you said that the
US cannot run these kind of deficits in good economic
times for very long, and then you also said, we'll
have to do better sooner, something sooner or later, and
sooner will be better than later. How's it going?
Speaker 2 (42:46):
So, of course I probably preface that by saying that
we don't comment on fiscal policy.
Speaker 3 (42:53):
That is the one thing that I have said.
Speaker 2 (42:55):
In My predecessors have also said in that is, the
US federal fiscal path is not a sustainable one. The
level of the debt is sustainable, but the path is not,
and we need to We need to address that sooner
or later. Sooner is better than later. That's what I
said last year. There's not a lot more I can say.
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:07):
Right now, we're going to go to CenTra in Portugal,
where the world's top central bankers are gathering together for
a discussion with Bloomberg's Francine Lacua.
Speaker 3 (00:16):
We had let's listening.
Speaker 4 (00:17):
Today this morning. Consumer prices rising some two percent from
a year ago, up from AYE one point nine percent,
but then the tariffs still loom large. So how do
you see that developing?
Speaker 5 (00:28):
Well, first of all, I would note that we are
at two percent and this is the latest reading. This
is also the target that we have had, and this
is the projection that our staff is indicating for the
medium term, which is exactly what we had anticipated. So
I'm not saying mission accomplished, but I say target reached. Okay,
(00:49):
And I think we should start by recognizing that we
faced massive amount of shocks, compounded shocks occasionally, and we
are through this inflationary process that we have conducted over
the last two years. And yes, we are facing a
lot of uncertainty. Yes we are facing the risk of
(01:10):
fragmentation increasing, and yes we are facing political developments that
are worrying generally, but that also are causing two side
risk to inflation, So we have to continue to be
extremely vigilant. We have to continue to be committed to
delivering on our target, and I think we are at
(01:33):
this point in time in a very good position to
do that. So we are well equipped to navigate the
tormented waters that we should anticipate.
Speaker 4 (01:42):
Chair Powel. Tariffs are not yet showing up in inflation.
Is this forcing you or your staff to actually rethink
what the models say about how much the tariffs will
ultimately through some of the final prices.
Speaker 2 (01:55):
So thank you Frantz and Christine. Thank you to you
and your colleagues for putting on another great conference here today.
Speaker 3 (02:00):
It's been a pleasure. I guess I.
Speaker 2 (02:02):
Would start, if I may, by saying that the US
economy is in a pretty good position. Inflation has come
down close to two percent, we're two point three headline,
two point seven core. The unemployment rate is at four
point two percent, so we're healthy overall. The if you
look ignore the tariffs for a second, inflation is behaving
(02:23):
pretty much exactly as we as we have expected and
hoped that it would. We haven't seen effects much yet
from tariffs, and we didn't expect too by now we've
always said that the timing, amount and persistence of the
inflation would be highly uncertain, and it's certainly improved that.
Speaker 3 (02:39):
So we're watching. We expect to.
Speaker 2 (02:42):
See over the summer some readings higher readings, but we're
prepared to learn that it can be higher or lower,
or later or sooner than we'd expect it.
Speaker 4 (02:53):
But a chair with the fen have cut more by
now if it weren't for the tariffs.
Speaker 3 (02:58):
So I do think that I think that's right.
Speaker 2 (03:00):
Where in effect we went on hold when we saw
the size of the tariffs and where and essentially all
inflation forecasts for the United States went up materially as
a consequence of the tariffs. So we didn't overreact. In fact,
we didn't react at all. We're simply taking some time.
As long as the US economy is in solid shape,
(03:20):
we think the prudent thing to do is to wait
and learn more and see what those effects might be.
And again they haven't really shown up, and you know,
so we're for now, we're.
Speaker 4 (03:31):
Waiting, Governor, I mean South Korea's economies of course, Highland
reliant on trade, putting aside the deals that each government
could do can strike with the Trump administration, what can
central banks in your position do to shield economies from
the impact of trade tariffs?
Speaker 6 (03:47):
Actually about the tariff's impact on infreation. How current infreation
is well stabilized around two percent, and we believe tariff
tends to be defractionally rather than infretionary full reasons One,
it is created not likely to use retalitary tariff. Second, we
import twenty two percent of our import from China and
(04:10):
recently export price of China has been falling at five
percent a year for several years, and we believe that
it will continue to do so. And at this moment, our
growth rate is zero point eight percent, which is well
below our potential growth rate, so aggregate demand pressure is
much lower. So our problem is not the infration itself,
(04:32):
but the gross impact of tariff.
Speaker 4 (04:34):
So what does that mean you'll do going forward?
Speaker 6 (04:37):
Actually we are we have been an easying cycle and
we cut our interest rate one hundred pp from last October,
and we will continue to be in an easying cycle
given our growth rate. But recently financial stability risk has
been rising, especially housing price in the metropolitan area is
increasing very fast. So we are keeping eye on this
(04:58):
financial stability risk. Deciding the pace in the timing of
the photocots.
Speaker 4 (05:03):
Governor Billy, you've taken the view that the latest rises
inflation in the UK will be transitory. Why are you
so confident that that inflation will fall back?
Speaker 7 (05:12):
Actually you've detected. I've tried to avoid using the translatory
work because oddly enough it has a bit of a history.
But to be serious, obviously, any increase in inflation is
an increase in inflation. Sorry to state the obvious. The
reasons it's gone up is really entirely due to so
called administered prices. Now that's say, that's an increasing prices,
(05:36):
don't get me wrong, But it's not telling us much
or anything about the context of the economy. In other words,
it's not telling us anything really much about the balance
of supply and demand in the economy. So I think
the key judgment for us is are we going to
get second round effects from this this pickup? And of
course it's nothing like the pickup with a few years ago,
just just to be clear, and my judgment is at
(05:57):
the moment is that the context is different. That we
do see evidence and I see some signs of softening
and the economy see signs of softening and the labor market.
We are going to have to see those come through, though,
I mean come through into into prices. I think we've
still got to see the evidence and prices. But that
background context allows certainly me to say, look, I think
(06:18):
the direction continues of interest rates continues to be downwards.
Speaker 4 (06:23):
When you look at all of the uncertainty. Again, is
it it's a bold call given what happened to oil
prices and trade negotiations.
Speaker 7 (06:31):
It is. I mean I would say two things on that.
Speaker 5 (06:34):
One.
Speaker 7 (06:35):
I think, as others have said, it's probably Jay was saying,
I think it's a bit too soon, I think really
to see the price effects coming through from from from
the trade and tariff's action. We've made a point of
saying also that I think, as Christine was saying, that
these are two sided. They could go either way. Could
be weaker demand, we could see some supply chain disruption.
And the second thing, of course, is that you know
(06:57):
some of these effects if you take the oil price
story for I mean, you know it's gone up, it's
come down all since our last meeting, effectively, so you know,
we always reach for the lexicon at this point. I mean,
we've added unpredictability to uncertainty. I was slightly amused at
the introductory film this morning with Christine saying all these words,
because it's true, because not only are we getting uncertainty
(07:18):
in the sense, you know, the range of outcomes, but
unpredictable in the sense that if you get things like
the tarifaction. History really isn't a particularly good guide to that. Actually,
you can't really draw much from the past on that.
Speaker 4 (07:30):
Now, Governor Uta, you're in a slightly different situation right Japan.
CPI has stayed above two percent for three years. Now,
what do you see as a fundamental changes in your
economy that make inslation more persistent?
Speaker 8 (07:44):
So let me say to put it simply, as you say,
headlining in version has been above two percent for almost
three years, while what we call underlying inversion, who is
still somewhat be a little two percent. That's the situation
we are in.
Speaker 7 (08:01):
But if I could.
Speaker 8 (08:02):
Decomposite father, there's probably about three components to it. First,
there's underlying inflation dictated by wage price dynamics, whereby increases
in prices affect wages, which further affect prices. Helped by
(08:23):
a resilient domestic demand this component is has been going
up slowly, but as I said, it's you're somewhat be
able to present. Then there's going to be perhaps a
second component, which will be the expected negative effects of
possible types on uh the economy and prices. We are
(08:47):
expecting this to take place, but we haven't seen that yet.
There's a third component, which is domestics of partial generated
by increases in food prices. This component accounts for about
fifty percent of the headline inflation we've got at the moment.
So letting these three, we think the first component and
(09:12):
the second component will produce a slow increase in underlying
inflation towards two percent by and twenty six or twenty seven.
The third component food inflation is going to subside toward
the year end. So but we will be closely monitoring
interplace between these three forces.
Speaker 4 (09:35):
But Governor, how do you trade concerns the day after
President Trump threatened Japan with more terrorifts.
Speaker 8 (09:42):
Well, it's it's being negotiated by our minister in charge.
So I'm trying to avoid making any specific.
Speaker 7 (09:52):
Comments on this.
Speaker 4 (09:54):
So let me just ask you what will be the
key trigger for Japan for deciding for the rate hikes.
Speaker 8 (10:02):
Okay, as I said, it will depend on the route
if strength of the three eye infashion dynamics I was describing,
and we need some more information to determine determined.
Speaker 4 (10:15):
Land, President Gard, When you look at rate cuts, I mean,
are we gonna where do you see actually the ECV going?
You're in a pretty comfortable position right now out of
all the Central Banks.
Speaker 9 (10:27):
Data, I will tell, so I think we are we are.
Speaker 5 (10:32):
We are determined to continue to be data dependent, to
decide meeting by meeting, and to not commit to any
particular rate path. That's the that the docs are. And
we're very lucky because we have just completed our strategy assessment,
which really gives us a good framework and good good
strategy lines within which to operate. But that those three
(10:55):
aspects that I have mentioned, data dependent, meeting by meeting,
no commitment to any particular rate path are constant in
that ongoing strategy based on what we have concluded actually
yesterday Chapel.
Speaker 2 (11:10):
So from our standpoint, as you will have seen, a
solid majority of f HOMC participants do expect that it
will become appropriate later this year to begin to reduce
rates again.
Speaker 3 (11:23):
And so.
Speaker 2 (11:25):
And that will depend though, as Christine just mentioned, on
the incoming data, will be monitoring particularly what does show
up in terms of inflation or what does not show up,
and also carefully watching the labor market. You know, we
watch very carefully for signs of unexpected weakness. We see
a gradual calling, but we don't really see that yet.
(11:46):
So those are the things will be watching. But as
I have mentioned, a majority of us do feel it
will be appropriate in the remaining four meetings of the
year to begin to reduce rates again.
Speaker 4 (11:55):
Madame Laguarde, the euro has also served about twelve percent
against the dollar so far this year. Are concerned that
its strength runs counter to your efforts to also loose
in financial conditions.
Speaker 5 (12:06):
You know, I'm not going to comment on the exchange rate.
We take it into account for purposes of our projections.
Obviously it as an impact, but it's a reflection of
the market conditions and assessment.
Speaker 9 (12:19):
It's also a reflection of the strength of our economy.
Speaker 5 (12:22):
But there has been a clear appreciation relative to the dollar.
Depending on how you look at it, it's eye the
depreciation of the dollar and appreciation of the euros, and
there might be a bit of both in that particular case.
We're also looking at the movement the flow of capitals
and the attractiveness of Euro denominated assets, which is also
an interesting phenomena that we've observed lately.
Speaker 4 (12:44):
Trip, I mean, is it fair to say, I know,
you know, nothing is guaranteed. Number one, we all know
this barring a real surprise. Is July just too soon,
too seriously even considerably?
Speaker 3 (12:54):
Yeah, I really can't say.
Speaker 2 (12:55):
It's going to depend on the data, and we are
going meeting by meeting. I mentioned you know how I'm
thinking about that, but I wouldn't take any meeting off
the table or put it directly on the table. It's
going to depend on how the data evolved.
Speaker 4 (13:10):
Governory, what's the biggest risk stemming from protectionist trade policy?
Actually for the global economy and for South Koreas, can
you see the biggest risk stemming from trades and protectionist measures?
Speaker 6 (13:23):
You know, the career has quite an export driven economy,
so whatever, the global fragmentation is a serious impact, not
only direct impacts through the US tariff, but also in
direct impacts through China, Mexico and Canada, and we usually
can it really depends on what's going to happen to
July nine. We are actually waiting for the research, but
(13:44):
we don't know what was going to happen. But for example,
like if the tariff goes back to twenty six percent
Italier tariff that was announced in April second and then
also with a lot of sexual tarifficial effect our economy,
aluminium steal and cars, you can easily say that it
has impacted larger than cost one percent. You our GDP
(14:08):
glow straight and depending on how long it last, I
think we have to adjust to the new supply chain,
so the impact will be larger. But I hope that
scenario one come.
Speaker 4 (14:20):
What is the most concern for the Bank of Korea.
Is it installing South Korea exports slow down and global
trade or a downturn in the US economy.
Speaker 6 (14:29):
It's all linked, right, It's all linked right, So it's
a global it can slow down. And one thing I
mentioned some negative sizes only but one pative side I
don't know is a path or not. But Korean companies
has been preparing for the supply diverscation a long time
ago before the tariff US tariffs start to because you
(14:50):
have some issues with China, and then also Chinese industry
has become very competitive, so we had to relocate our
looks insight from China to elsewhere. So relatively speaking, you
are well prepared. And second, still good thing is that
we have some strong industries such as a semiconductor, which
benefit from the AI technology development. So I hope that
(15:15):
we can manage it. But on the other end, given
the just we'll get the sheer size of the export dependence,
we will be significantly.
Speaker 4 (15:22):
Affecting govern Really, do do you think interest rates will
be closer to three or four percent at the end
of the easing cycle given all of the inflation and
trade dynamics.
Speaker 7 (15:31):
That's a subtle way into the ass star question. Actually,
I would detect. So I'm fairly cautious about the whole
discussion of the level of our star and therefore sort
of where rates are going to reach in the cycle.
There is huge uncertainty around it. What I think is
(15:52):
important and what we spend our time looking at is
how restrictive is policy both now and going forwards, And
our staff do a huge amount of work on that
front to judge the restrictiveness of policy in the current context,
and it's how restrictive it's going to be. Looking forwards.
If you project forward with the market curve and the
(16:12):
assessment we've got the reader is the policy is, policy
remains restrictive. It will continue to be restrictive, although the
level of restrictiveness will come down over time, which is
what I would expect, and I would expect that level
of restrictiveness to come down to a point where it
goes more neutral. But it's saying I think you have
to judge that in context, you know, just to give
(16:33):
you an example of that, in the UK economy, the
level of household and corporate debt in the UK economy
is actually lower than we would have expected it to be,
but based on past experience. So again that feeds through
it too, just how restrictive policy is at a given
interest rate. It's somewhat less restrictive probably than it would
have been historically.
Speaker 4 (16:54):
Could I ask all of you actually thoughts on the
neutral rates your power.
Speaker 2 (16:59):
That that's a the literal rate, So I think you know,
there are countless empirical and theoretical ways to derive it.
At the end of the day, I think I like
to look at the economy and ask whether our policy
stances having the effects we expect and want on the economy,
and to me, I would say we're somewhere probably modestly
(17:20):
restrictive at this level, and by some formulations we're more
restrictive in that. But if you look at the economy,
growth has been solid, the labor market is solid and
still at historically lower levels of unemployment. It's not an
economy that feels like it's suffering from very tight monetary policy.
But I would say that policy is still restrictive.
Speaker 4 (17:42):
President laguard.
Speaker 5 (17:45):
I would say that it's a nice concept, it's interesting,
and many of the terribly talented and brilliant economists in
this room actually are delighted with discussion about the neutral rate.
But honestly, as we're getting, you know, closed to target
and to where we should be or are where we
should be, and I don't want to past judgment on that,
(18:06):
I think that discussion becomes less relevant. I think what
our staff at the CB measures leads us to believe
that it is higher than where it was before the
Great Financial Crisis, but it's relative relatively low as well, compared,
for instance, with what the US neutral rate is at
(18:27):
the moment. But it's in a way, it's a bit
of an illusion to discuss that at the moment, because
the neutral rate is normally defined in a world where
there is no shock, where you have perfect equilibrium.
Speaker 9 (18:38):
Now are we in a world with no shocks at
the moment? I don't think so.
Speaker 5 (18:42):
So it's nice, nice to have as a concept, nice
to elaborate on it, nice to do research on it.
But to use it at the moment where we are
as a guiding principle to where we should be, I
don't think is particularly appropriate.
Speaker 7 (18:55):
And you bery well, that sort of continues what I
was saying earlier. Again, I don't use it as a
sort of a guide to where policy should be. But
I think this whole concept of restrictiveness is of course
critical to our judgment, because that's critical to the transmission
mechanism of policy, which we have to judge every time
we meet. So that's a judgment that, in a sense,
(19:16):
we renew every time every meeting we have. I think
I'd rather agree with what Jay was just saying. I
think in our case, policy is restrictive at the moment,
it's going to become less restrictive based on the curve
that we've got in the market. That's what I would
expect we will judge it each time.
Speaker 4 (19:34):
Governory similar, I have nothing to it. How would you
see it? Governor?
Speaker 3 (19:39):
You aida, yes.
Speaker 8 (19:41):
So we also estimated something like the neutral rate the
number of times, but the range of estimate is very wide.
So but at least we think we can say, well,
the current rate.
Speaker 9 (19:55):
Is below neutral.
Speaker 8 (19:57):
But other than that, I would refer to what Jay
said you're a two a girl in a Jackson Hall conference,
which was like, we are guided by our staff, but
under cloudy.
Speaker 4 (20:11):
Sky, President, can you talk to us about scenario and
why this is, you know, because of the sharks and
actually the changes that are going very fast, why scenarios
make more sense as a template of the economy.
Speaker 5 (20:25):
Okay, So this is a topic that we have largely
debated as part of the strategy assessment that we conducted
in in the last year. And I think, you know,
in fairness, the baseline, which is, you know, the essential
projection on which we work and we determine our monetary
policy stance, holds and is decisive in our consideration. But
(20:50):
at the same time, our staff has I wouldn't say forever,
but as long as I know myself, has always conducted
scenario analysis, sensitivity analysis in order to arrive at the
most solid baseline. It is probably the case that we
will do more of it more systematically, that we might
(21:11):
publish more often than we have. We have published, I
think in the last few years, for in four circumstances
we have published scenario analysis. The invasion of Ukraine was one,
COVID was one, the oil crisis as well, and the
tariff threats, so all those were exogenous factors that we're
sort of hitting our screens. I think we might do
(21:32):
more scenario analysis that will be looking at the longer
term trends that will affect our economy and that will
inform and strengthen our baseline, enhance it probably in its reliability.
So that's what we are debating at the moment. How
this is built, what assumptions we make, what choices are
(21:54):
decided in terms of publishing, will be determined by the
Governing Council.
Speaker 9 (21:59):
In good intelligence, we stuff j POW on scenarios.
Speaker 2 (22:03):
So for many years we have used scenario analysis internally
and I personally find it very useful. I think many
of my colleagues do too. You have just many different
kinds of scenario with six or seven at every FMC meeting.
They're often the topic of discussion among governors, and at
the meeting we have not taken a step of a
(22:24):
step of using them as a public communications device, and
that's a big difference. So that's one of the things
we're going to be talking about this fall. We will
wrap up the first part of our framework review, which
is the big consensus statement our monetary policy framework we
expect to by the end of the summer, and then
we're going to use the fall meetings to look at
(22:44):
communications ideas, and that's one of the ones.
Speaker 3 (22:46):
We'll look at.
Speaker 2 (22:47):
I will say it has a lot of appeal and
a lot of questions, and so my expectation is we
know if we're going to do something in that area,
it's going to be putting a toe in the water
and not just throwing ourselves in, you know, over Niagara
falls on it. So I can imagine a situation where
we would try that in a particular circumstance. But for us,
(23:09):
we're just going to do the work and understand it
as many other central banks are doing now.
Speaker 6 (23:15):
UH in case, we use the scenario analysis in our
risk management section as a as a kind of representing
the table risk. But I have to read the EACV report.
But if we have to move that section into the
more focusing section for public communication, I wonder whether it's
going to be easy to get some consensus. It's a
(23:36):
scenario we have to do it among our probably members
in the monetic policy meeting. So because that scenario and
the underine assumption maybe much harder to to communicate to
agree among the members. And also it's a specific to us.
But how I can differentiate the previous approach of risk
management section to the focusing that I have to think
(23:59):
about what we have to do.
Speaker 7 (24:01):
So I had two things I would add, and it's
very much in the same spirit as colleagues. One, we
introduced two scenarios, and the May Round and the May Report.
For me, they were very useful and they were either
on either side. They weren't symmetric, by the way, but
they were oither side. For me, they were very useful
(24:23):
in terms of my decision making because they helped me
to answer the question, given the uncertainty if we're wrong,
if I'm wrong in my judgment, how wrong am I
going to be? You know, do I think I'm going
to be? And what would be the consequences of that,
and you know, what would we then have to do
to deal with the moon? Is it manageable? And that
was helpful, and then I think the question is coming
(24:44):
back to know what Day was saying in terms of
public communication. I mean, this is the big step, I think,
and it is challenging. I tell you why, because I say,
it's quite a lot. We make a lot of conditional statements.
You might have detected this in all the interview, the
many interviews you do, and don't I'm not I'm not
making a personal comment now, Francine, but yeah, a lot
of those conditional comments get immediately translated as unconditional comments.
(25:09):
It's sort of life.
Speaker 4 (25:10):
We're quite careful.
Speaker 7 (25:11):
But yeah, no, no, it's not personal. You know, this
is the general point. And so so the reason I
say this is that if we yeah, and that's about
that's about the central case. By the way, so if
we introduce scenarios, you know, that's a message to us
that you're going to have to do this very carefully
in that world because to get the point across about
you know, there is always a there is always uncertainty,
(25:32):
there is always risk. How you calibrate those and how
you as Jay was saying, how you communicate those publicly.
It's critical but quite pretty challenging, frankly in that in
that environment.
Speaker 8 (25:42):
Governor you Ina, Yes, we also carry out many simulation
exercises about scenarios, but we have not, as far as
they know, published them. We do discuss in our quality
wards qualitatively what risks we are we have in mind.
(26:06):
On top of what I would say in a very
rough way, we are carrying out something like a risk
management approach to management policy making, which is probably a
bit similar to what Christine was talking about yesterday. I
(26:28):
can't come up with a good example, but so risk scenarios,
thinkings about tail risks sometimes do affect our monitor policy prinking.
Speaker 4 (26:38):
Can I ask you all about the dollar? Everyone's favorite subjects,
So when you tune out noise right of the past
few months, one has really changed about the dollar, Governor,
We are we really seeing some sort of paradigm shift
in the status as a reserve currency. That means historians
will look back on twenty twenty five as some sort
of pivotal year.
Speaker 6 (26:57):
I don't think so, especially in keys of Korea. Our
Korean one has appreciated significantly in the last two months,
but I think it's mostly due to the very unique
situation that we had, and we had a very unexpected
unnecessary martial law declaration in last December, and after that,
is this political risk, together with the slow down our economy,
(27:20):
really make Korean one depreciate much more than our fundamentals explains.
So in some sense the appreciation that we have observed
in the last two months in some sense normalization of our.
Speaker 7 (27:33):
Our currencies.
Speaker 6 (27:34):
And as for the kind of long term shift of
the Dalla sentiment, we have discussions, but it looks like
people are talking about it, but at this moment they
keep the Dallas sets while they're increasing the Hatch ratios.
So at this moment, I think the lion's share of
the impact VI support showed this one is impact is
mostly moving from the unhatchy to the hetchy positions. So
(27:57):
we have to see what will happen.
Speaker 7 (27:59):
In the future. Governor baby Well, I'd say two things.
First of all, I think that it's important to bear
in mind what the sort of the definition of a
reserve currency is and how it's evolved over many years.
So I, like Jenerally, I don't see the being a
sort of a major shift at the moment, not least
(28:21):
because in this day and age, the definition of a
reserve currency has as much to do with the supply
of safe assets into the market that can be used
for all the purposes of collateral and security, that they
are as much about as much as it is about
a sort of pure exchange rait. So I think we're
a long way off that sort of that change happening.
The second thing is going back to Someny Christine was
saying earlier. I mean, when we look at financial conditions,
(28:44):
I wish we do, of course, but I do think
particularly I mean I always believe this, but I think
it's even more relevant to the moment to unpack a
financial conditions index. And the reason I say that is
because we've seen a breakdown in the correlations of the
components of a financial conditions index. So you look at
sort of bond you're you look at exchange rates, you
look at equity risk premium for instance. Those correlations are
(29:05):
not the ones that we've tended to see established over time,
so you have to look at it much more carefully.
There are stories, to my mind about each of the
components of that. So when I look at the exchange
rates you know, I look at it very much on
that basis. I don't think it's sensible to sort of
pack it all up as we normally wouldn't say it's
all behaving normally because the correlations are.
Speaker 4 (29:27):
Not actually governor ueida. I mean, there's also many colleagues
at central banks I guess around the world are building
up gold reserves. Is that the only real alternative to
the dollar?
Speaker 8 (29:40):
I think it's up to a certain extent, what areas
like you're on or China would do in terms of
improving the efficiency or convenience of their currencies, Like the
kinds of things we were discussing this morning, capital markets, integration,
(30:02):
and these things will change the degree to which the
role of the data may decline are.
Speaker 4 (30:10):
In the future, I mean the dard.
Speaker 5 (30:14):
You know, I think I don't know if twenty twenty
five will be a pivotal year. I would tend to
think that yes, it might very well be, but for
a major change to occur will take a lot of
time and will require a lot of effort. And I
(30:35):
completely agree with the points made by Andrew about the
dichotomy that we're seeing at the moment, and that might
be an indication of the fact that investors are looking
at options. This is what investors are saying, They ask questions,
they seek alternatives, and whether that translates into a general
lack of confidence that will be further fueled by more uncertainty,
(30:59):
more and predictable.
Speaker 9 (31:00):
Did you a bit of a jump.
Speaker 5 (31:01):
In the unknown on several fronts, not just monetary policy,
not just even the economics, but beyond that in terms
of security at large, for instance, I think remains to
be seen. It's not going to happen just like that overnight.
It never did historically. There's no reason you should know,
but there is there is clearly something that has that
has been broken, and whether it is fixable or whether
(31:23):
it is going to continue to be broken, I think
the jury is out on that front.
Speaker 4 (31:27):
A trepal. How do you think we'll look back on
twenty twenty five?
Speaker 3 (31:30):
No one, here's me.
Speaker 2 (31:34):
How we're going to look back on twenty twenty five?
Speaker 9 (31:36):
Yeah?
Speaker 4 (31:37):
How will historians look back on this year? Is it pivotal?
Speaker 3 (31:41):
It's clearly an important It's an important year.
Speaker 2 (31:45):
There's a there's a lot going on, you know that
with trade, and I think my hopeful that will look
back on it as a year that were we significant
successfully challenged some significant economic changes, and you know our
job is to make sure that that.
Speaker 3 (32:00):
Is the case.
Speaker 4 (32:02):
You get attacked by the president a lot on a
personal basis, does it make your job harder?
Speaker 3 (32:08):
I'm very focused on just doing my job.
Speaker 2 (32:10):
I mean, there are things that the things that matter
are using our tools to achieve the goals that commerce
has given us maximum employments, price stability, financial stability, and
that's what we focus on.
Speaker 4 (32:21):
One I'm a dumb laguarde. If you were in the
same position as Chair Powell, would you do anything differently?
Speaker 5 (32:41):
I think I speak for myself, but I speak for
all colleagues on the panel. I think we would do
exactly the same thing as our colleague J.
Speaker 9 (32:48):
Powell does the same thing.
Speaker 1 (32:50):
Yeah right, yes, Governor.
Speaker 4 (33:07):
Is the rest of the world decoupling from America but
pulling tighter elsewhere. How do you see fragmentation happening?
Speaker 7 (33:15):
Well, fragmentation were it to happen, and my view is
bad for activity in the world economy, no question about that.
I mean, if we reduce the openness of the world economy,
that will be bad for activity in the world economy. Now,
I temper that in one respect because obviously we have
learned a lot about the robust list of supply chains
(33:35):
over the last you know, five years, and it is
a course appropriate that there will be adjustments to that.
But if we see a breakdown of the openness of
the world economy sort of beyond that, beyond that sort
of resilience that we do see as needed, then that's
that's bad for activity, it's bad for the world economy,
and that I'm afraid it's something that I think we need.
You know, we need to be very clear. I've said
(33:57):
a number of times that there are reasons why this
has happened. It's not right to just go around saying
just you know, this is all the wrong, wrong, wrong,
you know, there are no reasons why this is happening.
What I think is very important is that we get
back to a governance of the world economy where we
can address these issues in the appropriate multilateral fora and
(34:19):
get to the question of what lies behind these issues,
what's at the root of these issues, what exactly are
the issues, and what do we do about them? And
I can't emphasize this enough that I think it's an
obligation for all of us who are obviously very heavily
involved in the governance of the world economy. We've all
got very big responsibilities to say that is our duty
(34:41):
to get back and to the process of saying what's
caused this, and what do we do about it? And
what do we deduce are the underlying issues and how
do we address them, because otherwise, say, fragmenting the bod
economy is a bad outcome.
Speaker 4 (34:54):
But what kind of fragmentation would it be? Is it again?
You know, are you fearful that the world is splintering
irrevocably or is there a pool that's.
Speaker 7 (35:03):
Just moving well? I think if it was a breakdown
of trade in the world economy, obviously exactly how that
would manifest itself would remain to be seen, but it
would be running against a long period now where we've
been building the resilience of trade in the world economy,
we've been building openness. But as I said, I want
to I want to sort of temper that by saying, look,
(35:26):
there are issues. I don't think we should say there
are no issues. You know, this is all made up.
There are issues and we need to we need to
address what they are and work them out. But we
need to do that in the context of a commitment
to a robust, open world economy.
Speaker 4 (35:40):
Governor, as the only governor here representing a non reserve
currency country, how concerned are you about fragmentation of the
global financial system and the risk at the end of
the day that the US may be willing less willing
to provide dollar liquidity in a future financial shock.
Speaker 6 (35:57):
I think I mentioned that we are quite vulnerable to fragmentation,
but in reality, as a small country, it's a pity
that we can raise our voice, but in reality we
cannot change the course. So we have to probably take
it as an environment and to adapt it. What matters
is we talk about economic fragmentation, but for country like us,
(36:20):
the most serious issues combined with security, and for that issue,
let me stop here because I don't want to go further.
But as for the dollar equity support, as demonstrated during
the global financial crisis and pandemic period, the standing dollar
facility sub lines with five international financial centers and the
(36:42):
nine a temporary shub lines for the nine non reserve
currencies that was crucial in restoring the stability in the
global world. And if another global dollar strategy hits, I
believe that the US, FAD will extend the lines again,
which is very important. And but one other problem for
(37:04):
country like US is we know that the US provide
air lines as wrong as there is a global but issues,
what happened if there is our own problem and then
there's no global Our understanding is that FAD cannot extend
those subt lines in that case and we have to
self defense ourselves. That is why I think they're having
(37:27):
a sufficient level of reserves is very important. And listen
to you. Thanks to the introduction of the FEMA be
for postility by the FAD, actually the reserves become much
more effective tool to defend ourselves.
Speaker 4 (37:41):
Repower on fragmentation, Well, I.
Speaker 2 (37:44):
Guess I'll just agree with what Changan said, which is
our point out that our nothing has changed relative to
our swap lines. We still have the same authorities and
we're still prepared to use them in situations where it's
within our legal authorities and where we think it makes sense.
So that is and we know, we're aware that that's
a a big contribution that we can and and do
and will continue to make to the global financial stability.
Speaker 4 (38:07):
Goodnu Wada h how much do you think about fragmentation
and the impact that's could have on Japan.
Speaker 7 (38:13):
See.
Speaker 8 (38:13):
On the trade side, I think a lot about what
will happen to Asia, even Asia excluding China so UH.
This will depend on the relative tari frates imposed on
the region relative to to China or relative to other countries.
Speaker 9 (38:37):
But there's UH.
Speaker 8 (38:41):
Fairly a strong intra regional trade UH taking place UH
during the last decade or two. Also there's UH uh
new UH countries like India growing at very high speed.
So I I hope there's a residly and sufficient resilient
domestic demand in the region to keep the.
Speaker 3 (39:06):
Energy of the region alive.
Speaker 8 (39:10):
On the financial side, I don't have much to add
to a lot of other people have said, but it
would be important to keep trying a multi layer or
the approach to things like swap lines we have chen
my initiatives in Asia. Doing something similar or continue to
(39:31):
do something similar will be important.
Speaker 4 (39:35):
You've often spoken about the role that Europe could take
in a fragmented world. How do you see that developing
in what kind of timeframe?
Speaker 5 (39:44):
Well, I think you know Europe has witnessed in the
last four years in particular, well since nineteen twenty sorry,
twenty twenty two, in particular, the last three years major
challenges to its way of doing business, to the assumptions
that it has made about security, about supply, about destination.
(40:05):
Whether you look at what the horrible Russian invasion of
Ukraine has precipitated and how that has impaired the sentiment
of security that we in Europe had and the sentiment
that we could forever rely on the protection of others,
that has been impaired significantly. When you look at the
energy supply on which some of the European countries in particular,
(40:27):
but most of us have relied upon, namely access to
reasonably cheap oil and gas supply from Russia, that has
been impaired significantly, and we had to find the resources
to respond to that. And whether you look at the
business model of some countries where destination was inevitably China
in the main, that has already been challenged as a
result of the fragmentation that is not just a risk,
(40:49):
but which has happened. If you combine that with the
technology risk that we could all be under, either because
of political determination or because of of supply, whether it's
on the front of microships or rare earth. I think
we are in a situation where many of the assumptions
have been shaken up and where we collectively are on
(41:11):
the cusp of I hope, this is my hope of
you know, better taking hold and control of our destiny
by making significant structural efforts to you know, be more independent,
be more proactive, be more autonomous in all these different dimensions.
Speaker 9 (41:33):
Is it going to happen overnight?
Speaker 5 (41:34):
Yet again, no, because on some of those fronts, it
takes time, It takes investment, it takes political determination, it
takes momentum. And you know, from a pure sort of
as President of the ECB, what we can do on
the monetary front is to deliver on our mandate of
providing price stability so that the fluidity of factors that
(41:55):
is needed both in terms of capital in terms of labor,
can rest assured that price stability will be within our
limit under strict commitment to deliver on our target of
two percent medium term. But yes, I think it's a Historically,
I believe that in a few years time we will
look at twenty five of those those latest three years
(42:19):
as significant change in the way in which we conduct
our life, our business and develop Europe.
Speaker 9 (42:25):
And I hope for the better.
Speaker 4 (42:27):
Ja Powell. Last year in Cintron you said that the
US cannot run these kind of deficits in good economic
times for very long, and then you also said, we'll
have to do better sooner, something sooner or later, and
sooner will be better than later. How's it going?
Speaker 2 (42:46):
So, of course I probably preface that by saying that
we don't comment on fiscal policy.
Speaker 3 (42:53):
That is the one thing that I have said.
Speaker 2 (42:55):
In My predecessors have also said in that is, the
US federal fiscal path is not a sustainable one. The
level of the debt is sustainable, but the path is not,
and we need to We need to address that sooner
or later. Sooner is better than later. That's what I
said last year. There's not a lot more I can say.
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