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