WEBVTT - The ECB Sintra Forum's Policy Panel Talks Inflation, Rate Cuts 0:00:02.520 --> 0:00:07.000 Bloomberg Audio Studios, Podcasts, radio News. 0:00:07.880 --> 0:00:10.160 Right now, we're going to go to CenTra in Portugal, 0:00:10.240 --> 0:00:13.680 where the world's top central bankers are gathering together for 0:00:13.760 --> 0:00:16.120 a discussion with Bloomberg's Francine Lacua. 0:00:16.480 --> 0:00:18.000 We had let's listening. 0:00:17.880 --> 0:00:21.120 Today this morning. Consumer prices rising some two percent from 0:00:21.120 --> 0:00:23.680 a year ago, up from AYE one point nine percent, 0:00:24.360 --> 0:00:26.840 but then the tariffs still loom large. So how do 0:00:26.880 --> 0:00:27.880 you see that developing? 0:00:28.960 --> 0:00:30.640 Well, first of all, I would note that we are 0:00:30.680 --> 0:00:33.879 at two percent and this is the latest reading. This 0:00:34.000 --> 0:00:37.519 is also the target that we have had, and this 0:00:37.600 --> 0:00:41.879 is the projection that our staff is indicating for the 0:00:42.040 --> 0:00:45.120 medium term, which is exactly what we had anticipated. So 0:00:45.159 --> 0:00:49.440 I'm not saying mission accomplished, but I say target reached. Okay, 0:00:49.720 --> 0:00:53.680 And I think we should start by recognizing that we 0:00:53.800 --> 0:00:58.760 faced massive amount of shocks, compounded shocks occasionally, and we 0:00:58.840 --> 0:01:02.640 are through this inflationary process that we have conducted over 0:01:02.640 --> 0:01:07.680 the last two years. And yes, we are facing a 0:01:07.680 --> 0:01:10.720 lot of uncertainty. Yes we are facing the risk of 0:01:10.800 --> 0:01:16.440 fragmentation increasing, and yes we are facing political developments that 0:01:16.680 --> 0:01:22.600 are worrying generally, but that also are causing two side 0:01:23.080 --> 0:01:27.319 risk to inflation, So we have to continue to be 0:01:27.360 --> 0:01:30.600 extremely vigilant. We have to continue to be committed to 0:01:30.720 --> 0:01:33.319 delivering on our target, and I think we are at 0:01:33.319 --> 0:01:36.200 this point in time in a very good position to 0:01:36.280 --> 0:01:39.600 do that. So we are well equipped to navigate the 0:01:39.800 --> 0:01:42.000 tormented waters that we should anticipate. 0:01:42.800 --> 0:01:45.320 Chair Powel. Tariffs are not yet showing up in inflation. 0:01:45.880 --> 0:01:48.640 Is this forcing you or your staff to actually rethink 0:01:48.640 --> 0:01:51.360 what the models say about how much the tariffs will 0:01:51.440 --> 0:01:54.520 ultimately through some of the final prices. 0:01:55.360 --> 0:01:57.720 So thank you Frantz and Christine. Thank you to you 0:01:57.760 --> 0:02:00.240 and your colleagues for putting on another great conference here today. 0:02:00.560 --> 0:02:02.800 It's been a pleasure. I guess I. 0:02:02.760 --> 0:02:04.720 Would start, if I may, by saying that the US 0:02:04.760 --> 0:02:07.880 economy is in a pretty good position. Inflation has come 0:02:07.960 --> 0:02:11.320 down close to two percent, we're two point three headline, 0:02:11.320 --> 0:02:14.040 two point seven core. The unemployment rate is at four 0:02:14.040 --> 0:02:19.240 point two percent, so we're healthy overall. The if you 0:02:19.280 --> 0:02:23.040 look ignore the tariffs for a second, inflation is behaving 0:02:23.080 --> 0:02:25.679 pretty much exactly as we as we have expected and 0:02:26.040 --> 0:02:29.680 hoped that it would. We haven't seen effects much yet 0:02:30.000 --> 0:02:32.880 from tariffs, and we didn't expect too by now we've 0:02:32.880 --> 0:02:36.400 always said that the timing, amount and persistence of the 0:02:36.680 --> 0:02:39.800 inflation would be highly uncertain, and it's certainly improved that. 0:02:39.960 --> 0:02:42.079 So we're watching. We expect to. 0:02:42.040 --> 0:02:45.760 See over the summer some readings higher readings, but we're 0:02:45.800 --> 0:02:49.840 prepared to learn that it can be higher or lower, 0:02:50.440 --> 0:02:53.520 or later or sooner than we'd expect it. 0:02:53.080 --> 0:02:55.119 But a chair with the fen have cut more by 0:02:55.160 --> 0:02:56.840 now if it weren't for the tariffs. 0:02:58.560 --> 0:03:00.360 So I do think that I think that's right. 0:03:00.400 --> 0:03:03.120 Where in effect we went on hold when we saw 0:03:03.280 --> 0:03:06.440 the size of the tariffs and where and essentially all 0:03:06.800 --> 0:03:10.280 inflation forecasts for the United States went up materially as 0:03:10.280 --> 0:03:14.480 a consequence of the tariffs. So we didn't overreact. In fact, 0:03:14.520 --> 0:03:17.280 we didn't react at all. We're simply taking some time. 0:03:17.320 --> 0:03:20.320 As long as the US economy is in solid shape, 0:03:20.600 --> 0:03:23.280 we think the prudent thing to do is to wait 0:03:23.360 --> 0:03:26.280 and learn more and see what those effects might be. 0:03:26.320 --> 0:03:29.640 And again they haven't really shown up, and you know, 0:03:29.720 --> 0:03:31.160 so we're for now, we're. 0:03:31.000 --> 0:03:34.680 Waiting, Governor, I mean South Korea's economies of course, Highland 0:03:34.840 --> 0:03:38.240 reliant on trade, putting aside the deals that each government 0:03:38.480 --> 0:03:41.600 could do can strike with the Trump administration, what can 0:03:41.680 --> 0:03:45.080 central banks in your position do to shield economies from 0:03:45.120 --> 0:03:46.480 the impact of trade tariffs? 0:03:47.440 --> 0:03:52.920 Actually about the tariff's impact on infreation. How current infreation 0:03:53.080 --> 0:03:56.760 is well stabilized around two percent, and we believe tariff 0:03:56.800 --> 0:04:01.080 tends to be defractionally rather than infretionary full reasons One, 0:04:01.160 --> 0:04:06.480 it is created not likely to use retalitary tariff. Second, we 0:04:07.200 --> 0:04:10.560 import twenty two percent of our import from China and 0:04:10.680 --> 0:04:16.440 recently export price of China has been falling at five 0:04:16.440 --> 0:04:19.360 percent a year for several years, and we believe that 0:04:19.400 --> 0:04:22.080 it will continue to do so. And at this moment, our 0:04:22.160 --> 0:04:24.679 growth rate is zero point eight percent, which is well 0:04:24.680 --> 0:04:28.919 below our potential growth rate, so aggregate demand pressure is 0:04:29.040 --> 0:04:32.640 much lower. So our problem is not the infration itself, 0:04:32.640 --> 0:04:34.279 but the gross impact of tariff. 0:04:34.880 --> 0:04:36.640 So what does that mean you'll do going forward? 0:04:37.680 --> 0:04:40.159 Actually we are we have been an easying cycle and 0:04:40.320 --> 0:04:43.520 we cut our interest rate one hundred pp from last October, 0:04:43.839 --> 0:04:46.000 and we will continue to be in an easying cycle 0:04:46.120 --> 0:04:50.480 given our growth rate. But recently financial stability risk has 0:04:50.560 --> 0:04:54.800 been rising, especially housing price in the metropolitan area is 0:04:54.920 --> 0:04:57.839 increasing very fast. So we are keeping eye on this 0:04:58.200 --> 0:05:02.240 financial stability risk. Deciding the pace in the timing of 0:05:02.279 --> 0:05:03.120 the photocots. 0:05:03.760 --> 0:05:06.200 Governor Billy, you've taken the view that the latest rises 0:05:06.240 --> 0:05:09.919 inflation in the UK will be transitory. Why are you 0:05:09.960 --> 0:05:12.159 so confident that that inflation will fall back? 0:05:12.480 --> 0:05:16.000 Actually you've detected. I've tried to avoid using the translatory 0:05:16.040 --> 0:05:21.200 work because oddly enough it has a bit of a history. 0:05:21.640 --> 0:05:26.440 But to be serious, obviously, any increase in inflation is 0:05:26.440 --> 0:05:29.360 an increase in inflation. Sorry to state the obvious. The 0:05:29.640 --> 0:05:32.080 reasons it's gone up is really entirely due to so 0:05:32.160 --> 0:05:36.040 called administered prices. Now that's say, that's an increasing prices, 0:05:36.040 --> 0:05:38.400 don't get me wrong, But it's not telling us much 0:05:38.560 --> 0:05:41.680 or anything about the context of the economy. In other words, 0:05:41.680 --> 0:05:43.880 it's not telling us anything really much about the balance 0:05:43.920 --> 0:05:47.000 of supply and demand in the economy. So I think 0:05:46.839 --> 0:05:48.800 the key judgment for us is are we going to 0:05:48.800 --> 0:05:51.840 get second round effects from this this pickup? And of 0:05:51.839 --> 0:05:53.800 course it's nothing like the pickup with a few years ago, 0:05:54.120 --> 0:05:57.360 just just to be clear, and my judgment is at 0:05:57.360 --> 0:05:59.719 the moment is that the context is different. That we 0:05:59.800 --> 0:06:02.320 do see evidence and I see some signs of softening 0:06:02.320 --> 0:06:04.839 and the economy see signs of softening and the labor market. 0:06:06.120 --> 0:06:08.120 We are going to have to see those come through, though, 0:06:08.279 --> 0:06:12.039 I mean come through into into prices. I think we've 0:06:12.040 --> 0:06:14.920 still got to see the evidence and prices. But that 0:06:15.000 --> 0:06:18.200 background context allows certainly me to say, look, I think 0:06:18.240 --> 0:06:22.279 the direction continues of interest rates continues to be downwards. 0:06:23.360 --> 0:06:26.240 When you look at all of the uncertainty. Again, is 0:06:26.279 --> 0:06:29.039 it it's a bold call given what happened to oil 0:06:29.080 --> 0:06:31.520 prices and trade negotiations. 0:06:31.880 --> 0:06:34.000 It is. I mean I would say two things on that. 0:06:34.400 --> 0:06:34.640 One. 0:06:35.760 --> 0:06:38.680 I think, as others have said, it's probably Jay was saying, 0:06:38.720 --> 0:06:40.960 I think it's a bit too soon, I think really 0:06:41.040 --> 0:06:43.760 to see the price effects coming through from from from 0:06:43.800 --> 0:06:47.000 the trade and tariff's action. We've made a point of 0:06:47.040 --> 0:06:49.279 saying also that I think, as Christine was saying, that 0:06:49.320 --> 0:06:52.440 these are two sided. They could go either way. Could 0:06:52.480 --> 0:06:55.120 be weaker demand, we could see some supply chain disruption. 0:06:55.200 --> 0:06:57.279 And the second thing, of course, is that you know 0:06:57.320 --> 0:06:59.120 some of these effects if you take the oil price 0:06:59.200 --> 0:07:01.039 story for I mean, you know it's gone up, it's 0:07:01.040 --> 0:07:04.520 come down all since our last meeting, effectively, so you know, 0:07:04.560 --> 0:07:07.440 we always reach for the lexicon at this point. I mean, 0:07:07.480 --> 0:07:11.200 we've added unpredictability to uncertainty. I was slightly amused at 0:07:11.240 --> 0:07:14.600 the introductory film this morning with Christine saying all these words, 0:07:14.640 --> 0:07:18.440 because it's true, because not only are we getting uncertainty 0:07:18.440 --> 0:07:20.400 in the sense, you know, the range of outcomes, but 0:07:20.480 --> 0:07:22.560 unpredictable in the sense that if you get things like 0:07:22.880 --> 0:07:26.840 the tarifaction. History really isn't a particularly good guide to that. Actually, 0:07:26.840 --> 0:07:29.480 you can't really draw much from the past on that. 0:07:30.160 --> 0:07:34.040 Now, Governor Uta, you're in a slightly different situation right Japan. 0:07:34.120 --> 0:07:37.840 CPI has stayed above two percent for three years. Now, 0:07:38.240 --> 0:07:40.760 what do you see as a fundamental changes in your 0:07:40.800 --> 0:07:42.880 economy that make inslation more persistent? 0:07:44.440 --> 0:07:48.560 So let me say to put it simply, as you say, 0:07:48.840 --> 0:07:52.360 headlining in version has been above two percent for almost 0:07:52.440 --> 0:07:56.640 three years, while what we call underlying inversion, who is 0:07:56.680 --> 0:07:59.920 still somewhat be a little two percent. That's the situation 0:08:00.120 --> 0:08:00.600 we are in. 0:08:01.280 --> 0:08:02.280 But if I could. 0:08:02.240 --> 0:08:08.920 Decomposite father, there's probably about three components to it. First, 0:08:09.080 --> 0:08:16.360 there's underlying inflation dictated by wage price dynamics, whereby increases 0:08:16.360 --> 0:08:22.960 in prices affect wages, which further affect prices. Helped by 0:08:23.200 --> 0:08:28.200 a resilient domestic demand this component is has been going 0:08:28.280 --> 0:08:32.240 up slowly, but as I said, it's you're somewhat be 0:08:32.280 --> 0:08:35.920 able to present. Then there's going to be perhaps a 0:08:35.960 --> 0:08:42.080 second component, which will be the expected negative effects of 0:08:42.480 --> 0:08:47.839 possible types on uh the economy and prices. We are 0:08:47.880 --> 0:08:50.680 expecting this to take place, but we haven't seen that yet. 0:08:51.559 --> 0:08:57.400 There's a third component, which is domestics of partial generated 0:08:57.440 --> 0:09:03.760 by increases in food prices. This component accounts for about 0:09:03.800 --> 0:09:07.120 fifty percent of the headline inflation we've got at the moment. 0:09:07.679 --> 0:09:12.839 So letting these three, we think the first component and 0:09:12.960 --> 0:09:17.400 the second component will produce a slow increase in underlying 0:09:17.440 --> 0:09:21.640 inflation towards two percent by and twenty six or twenty seven. 0:09:22.679 --> 0:09:27.640 The third component food inflation is going to subside toward 0:09:27.720 --> 0:09:32.480 the year end. So but we will be closely monitoring 0:09:32.960 --> 0:09:35.000 interplace between these three forces. 0:09:35.280 --> 0:09:38.720 But Governor, how do you trade concerns the day after 0:09:38.800 --> 0:09:41.480 President Trump threatened Japan with more terrorifts. 0:09:42.120 --> 0:09:49.000 Well, it's it's being negotiated by our minister in charge. 0:09:49.080 --> 0:09:53.120 So I'm trying to avoid making any specific. 0:09:52.800 --> 0:09:53.320 Comments on this. 0:09:54.920 --> 0:09:57.280 So let me just ask you what will be the 0:09:57.360 --> 0:10:01.280 key trigger for Japan for deciding for the rate hikes. 0:10:02.080 --> 0:10:06.080 Okay, as I said, it will depend on the route 0:10:06.120 --> 0:10:11.400 if strength of the three eye infashion dynamics I was describing, 0:10:11.960 --> 0:10:15.640 and we need some more information to determine determined. 0:10:15.200 --> 0:10:20.160 Land, President Gard, When you look at rate cuts, I mean, 0:10:20.480 --> 0:10:23.320 are we gonna where do you see actually the ECV going? 0:10:23.480 --> 0:10:25.679 You're in a pretty comfortable position right now out of 0:10:25.720 --> 0:10:27.040 all the Central Banks. 0:10:27.320 --> 0:10:32.360 Data, I will tell, so I think we are we are. 0:10:32.760 --> 0:10:35.680 We are determined to continue to be data dependent, to 0:10:35.760 --> 0:10:38.640 decide meeting by meeting, and to not commit to any 0:10:38.679 --> 0:10:42.640 particular rate path. That's the that the docs are. And 0:10:43.000 --> 0:10:46.439 we're very lucky because we have just completed our strategy assessment, 0:10:47.080 --> 0:10:50.679 which really gives us a good framework and good good 0:10:51.360 --> 0:10:55.400 strategy lines within which to operate. But that those three 0:10:55.440 --> 0:10:58.960 aspects that I have mentioned, data dependent, meeting by meeting, 0:10:59.360 --> 0:11:03.400 no commitment to any particular rate path are constant in 0:11:03.440 --> 0:11:07.880 that ongoing strategy based on what we have concluded actually 0:11:08.080 --> 0:11:10.000 yesterday Chapel. 0:11:10.760 --> 0:11:14.360 So from our standpoint, as you will have seen, a 0:11:14.400 --> 0:11:17.640 solid majority of f HOMC participants do expect that it 0:11:17.679 --> 0:11:22.560 will become appropriate later this year to begin to reduce 0:11:22.640 --> 0:11:23.160 rates again. 0:11:23.440 --> 0:11:24.000 And so. 0:11:25.480 --> 0:11:29.160 And that will depend though, as Christine just mentioned, on 0:11:29.200 --> 0:11:32.480 the incoming data, will be monitoring particularly what does show 0:11:32.600 --> 0:11:35.559 up in terms of inflation or what does not show up, 0:11:35.880 --> 0:11:39.000 and also carefully watching the labor market. You know, we 0:11:39.080 --> 0:11:43.960 watch very carefully for signs of unexpected weakness. We see 0:11:43.960 --> 0:11:46.120 a gradual calling, but we don't really see that yet. 0:11:46.120 --> 0:11:47.960 So those are the things will be watching. But as 0:11:48.160 --> 0:11:50.079 I have mentioned, a majority of us do feel it 0:11:50.160 --> 0:11:52.640 will be appropriate in the remaining four meetings of the 0:11:52.720 --> 0:11:54.679 year to begin to reduce rates again. 0:11:55.280 --> 0:11:58.080 Madame Laguarde, the euro has also served about twelve percent 0:11:58.120 --> 0:12:00.520 against the dollar so far this year. Are concerned that 0:12:00.600 --> 0:12:03.600 its strength runs counter to your efforts to also loose 0:12:03.640 --> 0:12:04.800 in financial conditions. 0:12:06.000 --> 0:12:08.040 You know, I'm not going to comment on the exchange rate. 0:12:10.640 --> 0:12:13.400 We take it into account for purposes of our projections. 0:12:13.520 --> 0:12:16.719 Obviously it as an impact, but it's a reflection of 0:12:17.240 --> 0:12:19.480 the market conditions and assessment. 0:12:19.600 --> 0:12:22.559 It's also a reflection of the strength of our economy. 0:12:22.840 --> 0:12:26.840 But there has been a clear appreciation relative to the dollar. 0:12:26.920 --> 0:12:28.439 Depending on how you look at it, it's eye the 0:12:28.559 --> 0:12:31.320 depreciation of the dollar and appreciation of the euros, and 0:12:31.360 --> 0:12:33.440 there might be a bit of both in that particular case. 0:12:33.600 --> 0:12:37.479 We're also looking at the movement the flow of capitals 0:12:37.520 --> 0:12:40.920 and the attractiveness of Euro denominated assets, which is also 0:12:40.920 --> 0:12:43.080 an interesting phenomena that we've observed lately. 0:12:44.600 --> 0:12:46.400 Trip, I mean, is it fair to say, I know, 0:12:46.600 --> 0:12:48.800 you know, nothing is guaranteed. Number one, we all know 0:12:48.880 --> 0:12:52.079 this barring a real surprise. Is July just too soon, 0:12:52.160 --> 0:12:53.640 too seriously even considerably? 0:12:54.520 --> 0:12:55.520 Yeah, I really can't say. 0:12:55.520 --> 0:12:58.400 It's going to depend on the data, and we are 0:12:58.440 --> 0:13:03.079 going meeting by meeting. I mentioned you know how I'm 0:13:03.120 --> 0:13:05.760 thinking about that, but I wouldn't take any meeting off 0:13:05.760 --> 0:13:07.679 the table or put it directly on the table. It's 0:13:07.679 --> 0:13:09.760 going to depend on how the data evolved. 0:13:10.920 --> 0:13:13.800 Governory, what's the biggest risk stemming from protectionist trade policy? 0:13:13.800 --> 0:13:17.480 Actually for the global economy and for South Koreas, can 0:13:17.559 --> 0:13:22.880 you see the biggest risk stemming from trades and protectionist measures? 0:13:23.280 --> 0:13:26.560 You know, the career has quite an export driven economy, 0:13:27.040 --> 0:13:30.400 so whatever, the global fragmentation is a serious impact, not 0:13:30.520 --> 0:13:33.280 only direct impacts through the US tariff, but also in 0:13:33.320 --> 0:13:37.640 direct impacts through China, Mexico and Canada, and we usually 0:13:38.320 --> 0:13:40.640 can it really depends on what's going to happen to 0:13:40.679 --> 0:13:44.360 July nine. We are actually waiting for the research, but 0:13:44.520 --> 0:13:47.440 we don't know what was going to happen. But for example, 0:13:47.520 --> 0:13:51.760 like if the tariff goes back to twenty six percent 0:13:51.880 --> 0:13:55.679 Italier tariff that was announced in April second and then 0:13:55.720 --> 0:13:59.319 also with a lot of sexual tarifficial effect our economy, 0:13:59.360 --> 0:14:04.000 aluminium steal and cars, you can easily say that it 0:14:04.040 --> 0:14:08.800 has impacted larger than cost one percent. You our GDP 0:14:08.880 --> 0:14:12.040 glow straight and depending on how long it last, I 0:14:12.040 --> 0:14:14.160 think we have to adjust to the new supply chain, 0:14:14.520 --> 0:14:18.480 so the impact will be larger. But I hope that 0:14:18.679 --> 0:14:19.560 scenario one come. 0:14:20.560 --> 0:14:22.960 What is the most concern for the Bank of Korea. 0:14:23.120 --> 0:14:26.480 Is it installing South Korea exports slow down and global 0:14:26.520 --> 0:14:28.920 trade or a downturn in the US economy. 0:14:29.760 --> 0:14:32.200 It's all linked, right, It's all linked right, So it's 0:14:32.200 --> 0:14:35.200 a global it can slow down. And one thing I 0:14:35.480 --> 0:14:39.640 mentioned some negative sizes only but one pative side I 0:14:39.640 --> 0:14:42.200 don't know is a path or not. But Korean companies 0:14:42.320 --> 0:14:46.280 has been preparing for the supply diverscation a long time 0:14:46.320 --> 0:14:50.680 ago before the tariff US tariffs start to because you 0:14:50.760 --> 0:14:54.440 have some issues with China, and then also Chinese industry 0:14:54.440 --> 0:14:58.760 has become very competitive, so we had to relocate our 0:15:00.040 --> 0:15:03.280 looks insight from China to elsewhere. So relatively speaking, you 0:15:03.320 --> 0:15:07.280 are well prepared. And second, still good thing is that 0:15:07.400 --> 0:15:10.680 we have some strong industries such as a semiconductor, which 0:15:10.720 --> 0:15:15.360 benefit from the AI technology development. So I hope that 0:15:15.440 --> 0:15:17.880 we can manage it. But on the other end, given 0:15:17.920 --> 0:15:21.120 the just we'll get the sheer size of the export dependence, 0:15:21.560 --> 0:15:23.120 we will be significantly. 0:15:22.560 --> 0:15:25.680 Affecting govern Really, do do you think interest rates will 0:15:25.680 --> 0:15:27.840 be closer to three or four percent at the end 0:15:27.840 --> 0:15:29.920 of the easing cycle given all of the inflation and 0:15:29.960 --> 0:15:31.080 trade dynamics. 0:15:31.760 --> 0:15:34.240 That's a subtle way into the ass star question. Actually, 0:15:35.600 --> 0:15:41.440 I would detect. So I'm fairly cautious about the whole 0:15:41.480 --> 0:15:45.200 discussion of the level of our star and therefore sort 0:15:45.240 --> 0:15:47.880 of where rates are going to reach in the cycle. 0:15:49.120 --> 0:15:52.120 There is huge uncertainty around it. What I think is 0:15:52.160 --> 0:15:55.000 important and what we spend our time looking at is 0:15:55.040 --> 0:16:00.200 how restrictive is policy both now and going forwards, And 0:16:00.200 --> 0:16:02.080 our staff do a huge amount of work on that 0:16:02.120 --> 0:16:05.880 front to judge the restrictiveness of policy in the current context, 0:16:06.800 --> 0:16:10.000 and it's how restrictive it's going to be. Looking forwards. 0:16:10.000 --> 0:16:12.560 If you project forward with the market curve and the 0:16:12.600 --> 0:16:14.960 assessment we've got the reader is the policy is, policy 0:16:15.000 --> 0:16:17.960 remains restrictive. It will continue to be restrictive, although the 0:16:18.040 --> 0:16:21.440 level of restrictiveness will come down over time, which is 0:16:21.480 --> 0:16:25.400 what I would expect, and I would expect that level 0:16:25.400 --> 0:16:27.480 of restrictiveness to come down to a point where it 0:16:27.960 --> 0:16:30.360 goes more neutral. But it's saying I think you have 0:16:30.400 --> 0:16:33.520 to judge that in context, you know, just to give 0:16:33.560 --> 0:16:37.360 you an example of that, in the UK economy, the 0:16:37.440 --> 0:16:40.400 level of household and corporate debt in the UK economy 0:16:40.440 --> 0:16:43.000 is actually lower than we would have expected it to be, 0:16:44.160 --> 0:16:47.360 but based on past experience. So again that feeds through 0:16:47.360 --> 0:16:49.600 it too, just how restrictive policy is at a given 0:16:49.640 --> 0:16:53.200 interest rate. It's somewhat less restrictive probably than it would 0:16:53.200 --> 0:16:54.080 have been historically. 0:16:54.880 --> 0:16:56.440 Could I ask all of you actually thoughts on the 0:16:56.440 --> 0:16:58.720 neutral rates your power. 0:16:59.000 --> 0:17:01.480 That that's a the literal rate, So I think you know, 0:17:01.520 --> 0:17:05.360 there are countless empirical and theoretical ways to derive it. 0:17:05.760 --> 0:17:08.760 At the end of the day, I think I like 0:17:08.840 --> 0:17:12.480 to look at the economy and ask whether our policy 0:17:12.520 --> 0:17:16.160 stances having the effects we expect and want on the economy, 0:17:16.160 --> 0:17:20.520 and to me, I would say we're somewhere probably modestly 0:17:20.600 --> 0:17:23.880 restrictive at this level, and by some formulations we're more 0:17:23.880 --> 0:17:25.760 restrictive in that. But if you look at the economy, 0:17:26.119 --> 0:17:30.359 growth has been solid, the labor market is solid and 0:17:30.640 --> 0:17:34.439 still at historically lower levels of unemployment. It's not an 0:17:34.440 --> 0:17:38.359 economy that feels like it's suffering from very tight monetary policy. 0:17:38.359 --> 0:17:41.200 But I would say that policy is still restrictive. 0:17:42.320 --> 0:17:43.240 President laguard. 0:17:45.160 --> 0:17:48.600 I would say that it's a nice concept, it's interesting, 0:17:48.760 --> 0:17:51.840 and many of the terribly talented and brilliant economists in 0:17:51.880 --> 0:17:56.880 this room actually are delighted with discussion about the neutral rate. 0:17:57.400 --> 0:18:00.960 But honestly, as we're getting, you know, closed to target 0:18:01.000 --> 0:18:03.960 and to where we should be or are where we 0:18:04.000 --> 0:18:06.159 should be, and I don't want to past judgment on that, 0:18:06.240 --> 0:18:09.440 I think that discussion becomes less relevant. I think what 0:18:09.920 --> 0:18:15.080 our staff at the CB measures leads us to believe 0:18:15.119 --> 0:18:17.639 that it is higher than where it was before the 0:18:17.680 --> 0:18:23.880 Great Financial Crisis, but it's relative relatively low as well, compared, 0:18:24.000 --> 0:18:27.600 for instance, with what the US neutral rate is at 0:18:27.600 --> 0:18:30.760 the moment. But it's in a way, it's a bit 0:18:30.800 --> 0:18:32.800 of an illusion to discuss that at the moment, because 0:18:32.800 --> 0:18:35.520 the neutral rate is normally defined in a world where 0:18:35.520 --> 0:18:38.440 there is no shock, where you have perfect equilibrium. 0:18:38.640 --> 0:18:40.560 Now are we in a world with no shocks at 0:18:40.560 --> 0:18:42.280 the moment? I don't think so. 0:18:42.280 --> 0:18:44.640 So it's nice, nice to have as a concept, nice 0:18:44.680 --> 0:18:47.439 to elaborate on it, nice to do research on it. 0:18:47.480 --> 0:18:49.760 But to use it at the moment where we are 0:18:49.840 --> 0:18:51.960 as a guiding principle to where we should be, I 0:18:51.960 --> 0:18:54.760 don't think is particularly appropriate. 0:18:55.400 --> 0:18:59.040 And you bery well, that sort of continues what I 0:18:59.040 --> 0:19:01.200 was saying earlier. Again, I don't use it as a 0:19:01.240 --> 0:19:04.520 sort of a guide to where policy should be. But 0:19:04.560 --> 0:19:08.280 I think this whole concept of restrictiveness is of course 0:19:08.320 --> 0:19:11.439 critical to our judgment, because that's critical to the transmission 0:19:11.480 --> 0:19:13.680 mechanism of policy, which we have to judge every time 0:19:13.720 --> 0:19:16.000 we meet. So that's a judgment that, in a sense, 0:19:16.040 --> 0:19:19.440 we renew every time every meeting we have. I think 0:19:19.760 --> 0:19:21.600 I'd rather agree with what Jay was just saying. I 0:19:21.640 --> 0:19:24.760 think in our case, policy is restrictive at the moment, 0:19:24.800 --> 0:19:28.800 it's going to become less restrictive based on the curve 0:19:28.840 --> 0:19:30.520 that we've got in the market. That's what I would 0:19:30.560 --> 0:19:32.920 expect we will judge it each time. 0:19:34.320 --> 0:19:38.240 Governory similar, I have nothing to it. How would you 0:19:38.280 --> 0:19:38.960 see it? Governor? 0:19:39.040 --> 0:19:40.880 You aida, yes. 0:19:41.000 --> 0:19:45.119 So we also estimated something like the neutral rate the 0:19:45.200 --> 0:19:49.040 number of times, but the range of estimate is very wide. 0:19:49.320 --> 0:19:53.920 So but at least we think we can say, well, 0:19:54.080 --> 0:19:55.440 the current rate. 0:19:55.440 --> 0:19:56.320 Is below neutral. 0:19:57.440 --> 0:20:01.960 But other than that, I would refer to what Jay 0:20:02.040 --> 0:20:05.800 said you're a two a girl in a Jackson Hall conference, 0:20:06.200 --> 0:20:10.280 which was like, we are guided by our staff, but 0:20:10.440 --> 0:20:11.440 under cloudy. 0:20:11.119 --> 0:20:17.000 Sky, President, can you talk to us about scenario and 0:20:17.040 --> 0:20:19.240 why this is, you know, because of the sharks and 0:20:19.280 --> 0:20:22.200 actually the changes that are going very fast, why scenarios 0:20:22.600 --> 0:20:24.720 make more sense as a template of the economy. 0:20:25.119 --> 0:20:28.000 Okay, So this is a topic that we have largely 0:20:28.000 --> 0:20:31.600 debated as part of the strategy assessment that we conducted 0:20:31.600 --> 0:20:35.199 in in the last year. And I think, you know, 0:20:35.560 --> 0:20:39.960 in fairness, the baseline, which is, you know, the essential 0:20:40.640 --> 0:20:44.320 projection on which we work and we determine our monetary 0:20:44.359 --> 0:20:50.240 policy stance, holds and is decisive in our consideration. But 0:20:50.320 --> 0:20:54.040 at the same time, our staff has I wouldn't say forever, 0:20:54.080 --> 0:20:57.640 but as long as I know myself, has always conducted 0:20:57.720 --> 0:21:02.520 scenario analysis, sensitivity analysis in order to arrive at the 0:21:02.520 --> 0:21:08.199 most solid baseline. It is probably the case that we 0:21:08.240 --> 0:21:11.320 will do more of it more systematically, that we might 0:21:11.359 --> 0:21:14.080 publish more often than we have. We have published, I 0:21:14.080 --> 0:21:18.640 think in the last few years, for in four circumstances 0:21:18.640 --> 0:21:22.440 we have published scenario analysis. The invasion of Ukraine was one, 0:21:22.640 --> 0:21:25.359 COVID was one, the oil crisis as well, and the 0:21:25.400 --> 0:21:29.160 tariff threats, so all those were exogenous factors that we're 0:21:29.200 --> 0:21:32.720 sort of hitting our screens. I think we might do 0:21:32.840 --> 0:21:36.959 more scenario analysis that will be looking at the longer 0:21:37.040 --> 0:21:39.840 term trends that will affect our economy and that will 0:21:39.880 --> 0:21:45.600 inform and strengthen our baseline, enhance it probably in its reliability. 0:21:46.080 --> 0:21:49.840 So that's what we are debating at the moment. How 0:21:49.880 --> 0:21:54.480 this is built, what assumptions we make, what choices are 0:21:54.720 --> 0:21:58.159 decided in terms of publishing, will be determined by the 0:21:58.200 --> 0:21:58.959 Governing Council. 0:21:59.160 --> 0:22:02.439 In good intelligence, we stuff j POW on scenarios. 0:22:03.119 --> 0:22:07.920 So for many years we have used scenario analysis internally 0:22:08.280 --> 0:22:11.200 and I personally find it very useful. I think many 0:22:11.240 --> 0:22:15.080 of my colleagues do too. You have just many different 0:22:15.119 --> 0:22:17.920 kinds of scenario with six or seven at every FMC meeting. 0:22:18.080 --> 0:22:21.040 They're often the topic of discussion among governors, and at 0:22:21.040 --> 0:22:24.119 the meeting we have not taken a step of a 0:22:24.359 --> 0:22:28.440 step of using them as a public communications device, and 0:22:28.560 --> 0:22:31.960 that's a big difference. So that's one of the things 0:22:32.000 --> 0:22:34.600 we're going to be talking about this fall. We will 0:22:34.640 --> 0:22:36.840 wrap up the first part of our framework review, which 0:22:36.880 --> 0:22:40.199 is the big consensus statement our monetary policy framework we 0:22:40.240 --> 0:22:42.280