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Speaker 1: Joining us from Jackson Holle is Jacob Franco. He's the

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Speaker 1: chairman emeritus of the Group of thirty, a former governor

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Speaker 1: of the Bank of Israel and the former chairman at

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Speaker 1: JP Morgan International. Jacob, really wonderful to have you with us, missus.

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Speaker 1: Beautiful backdrop at really you know, the point of a

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Speaker 1: precarious point right for policymakers as we get to this year,

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Speaker 1: as Jackson hole the theme, you know, structural shifts of

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Speaker 1: the global economy. So different to where we were last year.

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Speaker 1: What is the risk when it comes to potential policy

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Speaker 1: making mistakes as we entered this part of the economic cycle.

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Speaker 2: Well, it's good film all, thank you for having me here. Indeed,

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Speaker 2: this year is very different than was the situation last year.

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Speaker 2: When we spoke last year, we said that inflation is

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Speaker 2: still very high, interest rates well, still very low. It

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Speaker 2: was clear that the FED and the rest of the

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Speaker 2: banking the central banking community will need to tighten. Now

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Speaker 2: in a very different place. Inflation has started to recede,

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Speaker 2: interest rates have gone to where they should be, or

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Speaker 2: maybe there is still a little bit well to go

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Speaker 2: in the US. But basically the objective is there and

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Speaker 2: I think also that it is fair to say that

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Speaker 2: the doomsday focus of a hard lending a crash lending

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Speaker 2: have been refuted, so the situation in this regard is better.

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Speaker 2: On the other hand, there are so many new risks

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Speaker 2: that are coming, not necessarily from the monetary policies. Feel

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Speaker 2: they are coming from the tension between China and the

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Speaker 2: rest of the world. They are coming from the tension

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Speaker 2: arising between the Ukraine and Russia. They are coming from

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Speaker 2: the situation of the financial sector in China, in the

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Speaker 2: banking community there. They are coming from the fact that

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Speaker 2: the world, in order to resume sustainable growth, cannot be

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Speaker 2: completely detached from China. So the efforts should be to

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Speaker 2: reduce the stress, to reduce the tension, and steady as

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Speaker 2: you go. When it comes to the Federal Reserve, I

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Speaker 2: think they've done a spectacularly good job.

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Speaker 1: It's very interesting because wing back economics, you know, saying

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Speaker 1: that when we hear from j Power this year at

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Speaker 1: Jackson Holle, it be, you know, less whatever it takes

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Speaker 1: Volka that we had last year and perhaps more orchestrating

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Speaker 1: ourself landing Greensman, that we'll be hearing in terms of

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Speaker 1: the time. But you just mentioned just the scale of

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Speaker 1: global challenges right economic, political, not to mention climate policy divergence,

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Speaker 1: you know, compared to other economies. Is it possible for

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Speaker 1: the FED to take that into account with its calculus

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Speaker 1: on you know where they go from here.

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Speaker 2: Of course, the FED takes into account all the parts

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Speaker 2: of the global economy, but its primary role at the

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Speaker 2: present time is to ensure the price stability. We have

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Speaker 2: had high inflation for too long. The tightening has started

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Speaker 2: a little bit too late. So now the FED is

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Speaker 2: in the phase of reaffirming its credibility, of reaffirming its

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Speaker 2: leadership when it comes to price stability. All other central

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Speaker 2: banks are mouching at the same tune. I look at

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Speaker 2: the European Central Bank, the same story. They are tightening.

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Speaker 2: They are making sure that inflation is back within the

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Speaker 2: target below or at two percent. This is where the

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Speaker 2: main objective now. Of course, it is not to the

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Speaker 2: neglect of other objectives. But the concept today is that

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Speaker 2: in order to achieve all other objectives and in order

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Speaker 2: to help other policy makers using their instruments in the

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Speaker 2: most efficient way, the FED needs to provide the environment

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Speaker 2: of price stability and financial stability. And this is exactly

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Speaker 2: what they're doing now, Jacob.

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Speaker 3: The later data that you've seen from the US, what

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Speaker 3: does that tell you about where the FED will go on?

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Speaker 3: That data dependency stands.

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Speaker 2: Well. I believe that the data dependency will continue to

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Speaker 2: be an important guide, but not in a mechanical way

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Speaker 2: of saying, well, the numbers yesterday were so and so,

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Speaker 2: and therefore we should change our policies accordingly, but rather

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Speaker 2: looking forward, not backward looking, but forward looking. And the

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Speaker 2: data dependency is really the expected data dependency. The FED

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Speaker 2: wants to ensure that it is on the right trajectory.

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Speaker 2: And if it sees from the front windchill, not through

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Speaker 2: the back mirror, if it sees in the front window

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Speaker 2: that something is coming there, this will be the data

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Speaker 2: dependency that the FED will try to prevent and anticipate

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Speaker 2: and react to.

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Speaker 3: Remember back in twenty fifteen, when we had China's messive

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Speaker 3: evaluation of the yuan, and Jan and Yellen had to

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Speaker 3: take that into consideration. What sort of unexpected event from

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Speaker 3: the world's second largest economy could lead policymakers here in

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Speaker 3: the US to reconsider?

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Speaker 2: Well, of course, the FED will and is taking into

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Speaker 2: account the international consequences of its activities and what is

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Speaker 2: happening in the rest of the world. China is an

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Speaker 2: important factor and today its financial sector is putting a

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Speaker 2: lot of stress on the system. If you put together

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Speaker 2: the housing situation in China and the extraordinary large debt

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Speaker 2: in China, primarily debt that is off balance sheet, those

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Speaker 2: are the things that are of concern, and everyone in

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Speaker 2: the world is looking at it, of course, including the

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Speaker 2: Federal Reserve. We must ensure financial stability because this is

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Speaker 2: the sine qua non for a prosperous economy.

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Speaker 3: What does this mean then, for broader developing economies, because

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Speaker 3: we have seen already some in Latin America, for example,

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Speaker 3: cutting rates given that their own economies are slowing down.

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Speaker 3: If you add the rest coming from China, not to

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Speaker 3: mention that the US continues that path of higher for longer,

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Speaker 3: what does this mean for those smaller, more vulnerable economies.

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Speaker 2: Well, I'm glad you mentioned the emerging economies in the

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Speaker 2: Latin American ones, because whereas four years the industrial countries,

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Speaker 2: we're trying to preach and tell the developing countries and

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Speaker 2: the emerging economies how to behave, and they will always

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Speaker 2: coming from behind. In this particular, in recent years, they

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Speaker 2: have been ahead of the game. They have handled the

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Speaker 2: financial stress in a better way than many of the

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Speaker 2: industrial countries. The financial sector and the banking sector is

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Speaker 2: stronger than what it used to be, and in a

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Speaker 2: way it is now a two way learning experiences and

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Speaker 2: the industrial countries can also learn from the experience of

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Speaker 2: the emerging economies. So what I would say is that

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Speaker 2: humility is now also called for. We have gone through

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Speaker 2: so many crisis, many that emanated from the financial sector,

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Speaker 2: but in the last few years they emanated from a

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Speaker 2: completely different, unprecedented place. They came from health, the COVID business.

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Speaker 2: They came from a world that Russia the invasioned into Ukraine.

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Speaker 2: They translated itself into food and energy, the business of

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Speaker 2: the supply chain associated with China's the situation so in

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Speaker 2: all of these together has had to profound implications on

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Speaker 2: each economy in the world. But they all cannot be

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Speaker 2: prevented by monetary policy. And this is why. Whereas one

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Speaker 2: whether humility is called for, but it's also an agenda

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Speaker 2: item for the governments of the world to deal with

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Speaker 2: their fiscal situation, to deal with their structural challenges, and yes,

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Speaker 2: to deal with the climate, which has much more profound

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Speaker 2: long term implications on all of us.

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Speaker 1: Jacob I wanted to end the conversation by getting your

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Speaker 1: views on the debate over the judicual agenda and government

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Speaker 1: agenda in Israel. I thought it was interesting that Fitch

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Speaker 1: kind of made the case in its most recent report

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Speaker 1: arguing that it's not you know, these measures will not

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Speaker 1: necessarily doom the economy and then broader kind of you know,

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Speaker 1: reputational aspects of that. Do you agree with that, because

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Speaker 1: they're essentially saying that, you know, the drive or reform

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Speaker 1: even over the next four years may not be that strong.

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Speaker 2: Well, the judicial reform that was proposed would have caused

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Speaker 2: harm to the economy because look, Israel is a very

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Speaker 2: in a unique situation. It was an extraordinary rapid growth country.

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Speaker 2: It was the crown jewel of the high tech, very innovating,

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Speaker 2: very dramatically attractive foreign investment. Here comes suddenly the judicial reform,

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Speaker 2: which really was not elegent in the way in which

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Speaker 2: it was described. Israel does not have a constitution, and

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Speaker 2: therefore it is essential that the judicial branch of government

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Speaker 2: is completely independent, because otherwise the government controls both the

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Speaker 2: legislator ejured the judicial So there is a basic struggle

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Speaker 2: today in Israel who will elect the judges? And I

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Speaker 2: think that the s longest the judges are elected not

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Speaker 2: by only by politicians, but in a fundamental way that

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Speaker 2: has worked throughout the previous years. Israel has been and

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Speaker 2: will remain thriving democracy. But by the same token, one

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Speaker 2: should not be sanguine about it and recognized that some

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Speaker 2: of the proposals would have caused a lot of damage,

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Speaker 2: and that's why there are so many very profound demonstrations

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Speaker 2: in Israel in a democratic way, trying to ensure that

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Speaker 2: the legislations that are weakening the judicial branch of government

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Speaker 2: do not go through. And I'm optimistic about it because

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Speaker 2: the young generation and masses of people all over the country,

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Speaker 2: from all branches, from all professions, academics, high tech, lawyers, medical,

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Speaker 2: everyone else, are all recognizing that the secret for israel

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Speaker 2: extraordinary performance has been the thriving democracy. It is the

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Speaker 2: only democracy in the Middle East, and we should make

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Speaker 2: sure that it stays as strong as it is. But

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Speaker 2: I'm optimistic because of the large proportion of young people

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Speaker 2: who recognize this matter.

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Speaker 3: Jacob Frankel, thank you so much for joining us today

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Speaker 3: he is the former Governor of the Central Bank of

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Speaker 3: visral and Chairman emeritus of the Group of Thirty, joining

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Speaker 3: us from Jackson Hall