and Kevin Walsh, chair of the board of

governors of the Federal Reserve.

The panel will be expertly moderated by

Sarah Eisen, anchor at CNBC. Sara, over

to you.

>> Thank you. Thank you very much. And

thank you to President Lagard and to the

ECB for having me back here. It's an

amazing tradition and one of the

highlights of my year and and my career.

and way more fun than watching you guys

on your irrespective press conferences.

So, this is going to be fun. Um,

and and I'm excited because I I'm hoping

we can have a good debate about

divergence in policy and approaches and

and maybe with that, President Lagard,

I'll kick it off with you because you're

the only one up here to have raised

interest rates in response to the Middle

East oil shock.

Are you going to do it again? [laughter]

as here.

>> Now, why did you do that? [snorts]

>> Well, we did it because we had the

perfect monetary policy circumstances to

do so. And um you know when you have uh

in your inflation outlook up your core

inflation up when you have the

underlying inflation indicating that

it's also trending up as well and that

you're only going back to your 2% target

at the end of 28 with a number of things

happening in our uh inflation outlook

which includes you know the market

expectations in particular. Um, you have

the obvious decision and it was so

obvious that we had a unanimity decision

within the board of the the board of the

governing council.

>> But seriously, how will you decide

whether you keep going because you're

still above target?

>> You know what we decided to do is uh way

back to uh give up on forward guidance.

Okay. And personally and I've said that

publicly if I have one regret it's to

have felt um bound is now also informing

uh market participants informing

financial experts from all walks of life

about how we come to our monetary policy

stance and I have called it not forward

guidance but framework guidance so that

those interested in how we come up to a

particular decision appreciate what we

take into account what intellectual

process as we go through what indicators

we are particularly attentive to. So

that of course they have to do a little

bit more work themselves. It's not

forward guidance blindly and you just

assume that it's going to be what had

been um calibrated as forward guidance.

They will have to do a bit of homework.

They will have to look at the the

indicators that we're attentive to. They

will have to appreciate our intellectual

process and what we are especially

attentive to. And that includes you know

if I if I go through what um we uh we

did on the 11th of June we looked at the

inflation outlook uh taking into account

all the latest economic and financial

data with risks part of our assessment

as well and that's you know recent

development as as you know we looked at

underlying inflation various set of

indicators and we looked at the

transmission of monetary policy. So,

it's taking all that into account in the

context of a supply shock that led us to

the decision that that we made.

>> Speaking of not liking forward guidance,

which is going to make this job so much

harder for me, this panel. Um, Chairman

Wars, we have inflation in the US that

is higher than Europe's and farther away

from our target. So, why are we not

raising interest rates?

>> I was hoping you'd ask me about forward

guidance. Um,

>> we'll get there.

>> Uh,

>> because you have so much to say there

too, right? So we have found common

cause. Um it's what President Lagarde

said. I liked her when we met 20 years

ago when she was finance minister. After

that answer, I love her. Um reform does

not stop at the wat's edge. What I found

most exhilarating about the last two

days here is the kind of discussions

that we've begun at the Federal Reserve

have a lot of people at this conference

open-minded, keen to think a new about

the conduct of monetary policy and uh

and President Lagard's answer on forward

guidance. I couldn't have said it better

myself. We're going to chart a new

course so that we can make better

decisions and do the right thing. And so

my few days here have been incredibly

rewarding on that. On the broad conduct

of policy, uh at our my press

conference, I said I'm not going to give

forward guidance because we're meeting

in six weeks, but I have an update for

you. We're meeting in four weeks.

[laughter]

>> Helpful. So is July on the table for a

rate hike.

>> So uh Sarah is trying to get me to break

this rule. She's going to fail. Um

there's a lot of data that we received

in that meeting. and I see many of my

FOMC colleagues here in CRA. Um, I take

their views very seriously. I want us to

have a good family fight when we meet in

four weeks. Um, there's a lot of late

breaking news on a series of these

things and we get into that room and

shut the door, we're going to have the a

good debate. Um, uh, but I don't have

much more for you than that.

>> Okay, we'll get back to that.

>> How do you make sure Europe doesn't get

left behind on AI?

I know it's not necessarily the

>> it's not it's not the central bank

governor's question in a way.

>> I know you probably have thoughts.

>> No, I tell you something. Um one, I

think that we have to consider that as a

transformational uh technology

breakthrough and diffusion um and

material technology. Um it's going to it

needs to be analyzed from our

perspective both in terms of you know

how much capex is going in that in that

particular domain what impact it will

have how fast will it develop how will

it diffuse how will we reorganize the

way in which we conduct work including

at our central banks by the way uh to

really appreciate what impact it will

have on productivity. But if it delivers

the productivity expectation that we

have then it is going to be a radical

change going forward and we need to of

course from our perspective as central

bankers we need to measure the

disinflationary inflationary impact it

will have over the course of time and it

might be disinflationary first and

inflationary second or probably more so

the other way around but it it all needs

to take into account. Now, I I take your

point about Europe lagging behind in

terms of investment and um and the the

the frontier companies that are leading

the game at the moment. But I think that

we are all um sort of hostage to each

other if I may say because we need those

frontier companies but they need the

market when Europe represent 25% of the

revenues of many of those hyperscalers.

We need each other. We are in this game

together.

at which end of the spectrum at which

set of the supply chain to be determined

and there will be healthy competition

I'm sure but we depend on each other you

can't dispense we can't dispense of the

of them and they can't dispense of the

revenue source that we constitute so we

are in this together that's my personal

view

>> governor Mlin how's it impacting Canada

do you get the tailwind from from the

boom in the US or are you still dealing

with too big of a headwind from trade

for instance.

>> Um well look trade trade does continue

to be a headwind. I mentioned the

economy is soft. You certainly see the

impact of US tariffs uh on our exports.

I think you know coming back to

investment I think we get both some

tailwood but we also get a lot of

competitive pressure from the US. The US

is investing in a very big way. Uh and

you know our economies are very are very

integrated. Um, you know, we have a very

integrated business model in North

America. That's why trade uncertainty is

impacting Canada. Um, it also means

though, yeah, Canadian firms are going

to have to be competitive. I mean, what

what you see on AI, you know, it's it's

it's very interesting talking to

companies. So, you know, you survey

companies, you ask them, are you using

AI? Yeah, like almost everybody's using

AI. But then you say okay have you you

know materially changed a whole

production process and you know made it

you know embedded AI that's a much

smaller number you know that's something

like 10 15% uh depending so it does show

that there's there's a lot of a lot of

potential there um the you know whether

it's inflationary or disinflationary I

think you know look looking out

ultimately I mean there's so many good

reasons why This is a general purpose

technology and you know one of the

things I picked up over the last couple

days is well actually it could be even

bigger than that if it actually

accelerates the process of innovation of

discovery itself it could be uh even

bigger um but you know when exactly that

arrives when those dis disinflationary

kick in I think is a very open question

that's you know another one of those

things we need to be humble about in the

near term we are starting to see some

pressures you can see it you know you

mentioned our our a CPI number. If you

look at computers up 10%. How's that

going to feed through the supply chain?

I mean, those are the sort of things

we're going to need to keep an eye on.

>> Yeah, memory chips are a big deal. There

there's the inflation question, Governor

Bailey. There's also the jobs question.

And I know it's early and we don't

exactly know, but do you think of AI at

this point as a job killer or job

creator?

>> Well, I think the jury's out on that

question. I mean, if you look at the

sort of look at history, um, and you

look at I mean, TIFF's just been

referring to general purpose technology

innovation and you've seen waves of

general purpose technology innovation

over history. Uh, and they've actually

had different patterns in terms of their

impact on employment. Uh, so you can't

generalize to start with and you know

there there are some channels which will

create jobs, there are channels which

will destroy jobs, there will there will

be channels which will substitute jobs.

Um and what I mean two things matter

here. One is what the mix of those

channels is and I say it has differed.

Now I do think I this is not a central

bank point. This is this is much more of

a broader public policy point. I do

think we have choices in terms of public

policy you know mixes that we adopt on

that front particularly in things like

skills and training. Uh and the second

point I'd make is because again this

comes strongly view from fruit from from

looking at the past is that the length

of time it takes these effects to come

through. Uh and you know I said there's

more than one labor market effect the

the length of time it takes for each of

those effects to come through and

therefore what the mix will be over time

differs over time. Now again you know we

can yeah we can have choices there in

broad public policy terms and in how

economies operate. So it's very

important to to look at that but I

wouldn't generalize. I mean we're

certainly I mean so far you know when I

go around the country talking to

businesses yes there's a lot of talk

about it. I think a lot of businesses

are using it. I mean we're using it at

the Bank of England. I would say we're

still really in the experimentation

phase actually. That's fine. I mean

that's what you'd understand. Um, and

and the consequence of that is that you

don't certainly in the UK, I would say

we don't see it strongly in the overall

economywide data, but that doesn't

surprise me. I think it's too early for

that.

>> Chair WH opinion on jobs.

>> So, I'll jump in on that. First, I'll

say this is one of the central questions

that all of us have for our day jobs and

evaluating output, employment, and

inflation. Um these are big questions in

part because the rate of change of

improvement in these models is moving at

an exponential level. This is hyper

Moore's law stuff. And so while we might

see business surveys that say no big

deal, my speculation is six months from

now the surveys will be saying quite the

opposite. Um the United States is likely

to be a big winner over the medium-term

in this. But I don't say this from a

parochial perspective. The US is not

afraid of productivity-led economic

growth, but we don't view the economics

of this as zero sum. We aren't rooting

for another country to fail. We're

rooting for economic growth to be

broad-based. That's good for the United

States. It'll make all of our jobs

easier. Um, on your question of jobs, I

mean, I will go back to good econ one.

It's called the lump of labor fallacy

for a reason. Um, who knew when the

internet was born that the internet was

going to create a million and a half

jobs as Uber drivers? We are in the

first or second inning of this

revolution. This is a big paradigm shift

both for the conduct of our policy and

for our economies. I think the jobs will

be greater, prosperity will be stronger.

The question as one of my colleagues

raised is timing and we have to take

that timing very seriously. We have at

least in the United States a dual

mandate and we have to deliver both on

the employment side and on the stable

price side. So we'll be monitoring the

speed of it. But if you wanted me to

sound like a pessimist and a doomer on

this, I'm I'm afraid I'm not there.

>> If I could just come back on one other

point um on on this this whole area. I

mean the other big issue is financial

stability and you know this is a very

big you know a big development in terms

of frontier AI and what we do need to

see and I think this is pressing now is

that you know we work together to have

you know solid and robust arrangements

for introducing these models so that we

can take you know take risks out as best

we can where we where they are created

but well I mean they're always there but

they're brought to the surface if you

like by these models. That is a very

pressing issue that I think we have

stronger co you know co coordination of

that process.

>> President and on that vein I completely

agree with Andre on that but I celebrate

the fact that apparently tomorrow uh the

US and the EU authorities are going to

get together and sit down and decide the

terms under this will best be deployed

for the safety of all of us. So that's

that's a really good development.

>> I I did want to bring it back to

economic growth um for a moment.

President Lagard because and I've asked

you this for a few years in a row now

and you've always pushed back and have

been right. I'll push back again.

>> The stagflation question and whether

Europe is is facing stagflation.

>> Okay. Well, then I'll repeat what I've

said before. Uh stagflation is a concept

of the 70s in circumstances that are not

replicated those days. We are currently

at almost lowest historical levels of

unemployment.

Employment participation continues

growing. There will be different jobs to

your previous questions but employment

is is uh continuing to to grow

>> and and and and we are taking all the

right steps to make sure that we have

price stability. We're not going to let

inflation run you know out or the genius

get out of the bottle and inflation uh

move up. we will take the necessary

steps and we have

>> yeah I mean the employment story has

been a positive one for Europe for the

US as well I mean we've seen a really

remarkably resilient labor market

chairman Worsh how do you interpret the

recent data points on the labor side of

your mandate

>> so uh when we met two weeks ago I think

the way we as a committee described the

labor side of the mandate is we said

labor markets are steady we said the

demand side of the economy was solid and

we said the supply side of the economy,

especially capex and productivity.

Again, this is before we see the fruits

of AI. We said that was strong. I don't

want to I don't want to sound like a

Wall Street newsletter and update that

with recent events because we follow

trends. And you know, I'll reinforce

something that President Lagarde just

said. Um, we're all in the price

stability business. That might not be

our only business, but if there was a

common thing I heard over the last

couple of days, it was open-mindedness

on these questions of AI,

open-mindedness on productivity. But

we've all looked around and we've seen

that prices are too high. And I don't

think I'm the only one on this stage

that's recommitted to deliver price

stability.

>> So, the market was right to interpret

your first news conference as hawkish.

>> Uh,

>> nice try. Yeah, I I'm not I'm not I've

just gotten advice from from a from my

senior statesman on this group not to do

that. But I'll say this. Um expectations

of inflation over the first four months

uh first four weeks of this period,

they've come down. Inflation risks have

come down. Again, in our business, we

don't want to overdetermine things. But

if there were people in household or the

business sector in the financial markets

who thought that this central bank was

going to be comfortable with an

inflation objective above 2%. Well, I

guess they'd be disappointed. We're

going to deliver price stability in the

US. That's what this committee has

signed up to do and our objective is to

do that. The tactics, the strategy, and

the rest, uh, that's still to come.

>> No matter what the president wants. uh

we were we've been an independent

central bank for a very long time. We're

going to be an independent central bank

uh uh at this moment and you're going to

see no changes on that.

>> So is anybody Yeah.

>> Can I come back to the stagflation point

because I I just want to double down on

Christine. I mean stagflation it's a you

know it's doubledigit inflation, double

digit unemployment and the other thing

you know getting [clears throat] back to

what Kevin was just saying it's

unanchored inflation expectations. That

was the fundamental problem in the 1970s

and and the only way we got out of it

was we had to have you know a big

recession to re-anchor expectations.

>> If that happens you know we have

fundamentally failed to do our jobs. So

yes you know we have a period I mean

Canada yeah the economy is weak

unemployment's a little bit you know

it's high it's 6.6 inflation's 3.2 to

those those are not double- digit

numbers and you know that inflation

isn't not going to be persistent. Uh

inflation expectations are well

anchored. We're going to keep them well

anchored. So this whole word of

stagflation, it's it it doesn't apply to

the situation we have today. You got to

distinguish between a rise in

unemployment and inflation and

stagflation. They're not the same thing,

>> right? Some people just think of it as

slower growth and higher inflation, but

clearly that's not where you

>> It's a much more loaded word than that.

Yeah.

>> Um, Governor Bailey, you know, on this

topic of forward guidance, we make light

of it, but it it is a bit of a change, a

departure from where we've seen central

banks in recent years. I know I mean,

you you you kind of got rid of forward

guidance in 2021. You you said you did.

And how do we determine the difference

between a reaction function and forward

guidance?

>> [laughter]

>> Well, look, I mean,

you know, I think we have to sort of

tread carefully through this debate, not

least because the question you've just

asked, but um I mean almost anything we

say of course can attempt to be

interpreted as forward guidance. Um and

the second thing I would observe is that

of course all of us are making policy

which is going to have effect in the

future. Um so we sort of start with that

position. I I mean I think where forward

guidance has been very difficult and and

therefore I'm in very similar place to

my colleagues is that you you can get

locked into it very easily. Um you know

I've I've said a number of times in our

committee it's much easier to put it in

place than it is to take it away. And

therefore before you actually go and put

it in place just think about you know

what what we're going to have to deal

with as time goes by. uh because you

know it becomes quite problematic uh

after a while it overstays its welcome

so you know I'm also very cautious now I

but I recognize that you know anything

we say about the outlook for the economy

can be interpreted as a view of the

future and of course that you know we we

have to sort of in a sense do that but I

think we have to be very careful about

you know getting tied into views on

where rates are going to go that's the

thing that is much more problematic

>> but isn't it important chairman wars to

give the market a sense of of how you're

thinking about policy. You don't have to

give them a pre-commitment, but the

whole reaction function, how you think

of how you're going to make policy.

>> So, I think the most important thing we

can do is to get policy right.

If our communications tools, if our

models, if the way we've been playing

things makes it harder for us to go into

these meetings, have a family fight with

our colleagues and make the best

decision in pursuit of our mandates. If

that's an obstacle, we should get rid of

it. Um, it is it is said in recent

weeks, well, we need to know more about

your action function. If I look at

trigger pullers, people that are making

decisions in the bond market, in a range

of markets, volatility is not up, it's

down. Uh yields aren't up, they're down.

Um inflation expectations are down. So I

hear this that as if people don't

understand, I think they actually

understand quite well. Um, I feel

incredible comfort um that I'm not sure

I had internalized that there is a

willingness by my colleagues in the

central banking community around the

world to go back to first principles. We

all want to make the best decisions we

can. We've all been burdened with many

of the policies that in some sense the

Fed created in the 2008 financial

crisis. This is a rare moment for us to

go back to first principles, ask hard

questions, review what we're doing at

the Fed. We've got five outside task

forces to shed new light on this. And

I'm encouraged because in some sense, we

each think we're making our own monetary

policy, but each of our monetary

policies affect one another. And uh I'm

honored to be on a stage with three

colleagues who have been in the fight

for 15 or 20 years with me and without

me. And uh I won't at all be surprised

if six or 12 months from now each of us

are on a better path to deliver on what

we've said we're going to do.

>> Who's leading these task forces?

>> Um we have news to come. I can tell you

likely next week who will be the outside

experts. Some of them would have been

folks in seats like this in prior years.

Some would have been academics in the

audience. But we really tried to find

the best minds in economics profession

among practitioners

uh people experienced hands including

people from countries outside the US.

We're not asking for Dtoqueville to come

to America but sometimes we need a

foreigner to sort of see things clearly

and the idea of these is not to prejudge

the outcomes. I'm certainly not going to

do it. But I think as we make progress

on this, uh, I think some of the lessons

learned might not just be for the

American central banker who's new to

this group, but my colleagues on the

stage. I was going to volunteer force

>> at the ECB we went through the same

process

>> and when we started the the strategy

review it takes time and we did bring

under the leadership of of Philip Lane

our chief economist it did take time to

bring the we didn't call it task force

but we had expert committees we had

groups and and and it took a couple of

years before we actually settled down

and all agreed on the key principles the

uh reaction ction function, the elements

that we would take into account, the

measurements of the nature of the supply

shocks and the origin and blah blah blah

blah blah. It doesn't happen overnight.

It's complicated. It sounds simple when

you're at the end of the of the supply

chain, but the whole process is

complicated. So, I I really celebrate

the fact that you're going into this

task force exercise and are prepared to

let the best minds participate in that.

You know, there's also been a lot of

talk here about coordination and

influence on each other and and I am

curious, President Lagard, now that you

do have a little bit policy divergence,

you guys go maybe in different

directions. Is that is that a good thing

or is that a bad thing? Ultimately,

>> the divergence between who and who

>> policy, I mean, you're raising rates,

they're not raising rates, you know, is

that is that disrupting? I I totally

endorse the comments made by I think it

was uh both um Tiff and Andrew. We

started from different places. We were

at 2% interest rates. I think the Fed

was at 350 thereabout and you were at

>> 325.

>> Uh [clears throat] inflations were at

different levels as well and the markets

were expecting cuts in various corners.

So it's the different the situation was

entirely different. I don't regard that

as a divergence. I think the commitment

is the same to maintaining price

stability and doing what it takes to

actually deliver on that commitment.

>> But sometimes you see wild swings and I

mean the dollar yen for instance is at

the highest level in 40 years. Is that

is that okay chairman war? Well, before

we came here, we each um told a small

story about Governor Waya, who's been a

great colleague of many of ours, and

we're rooting for his good health so

that he can join us on panels like this

in the couple of months. Um if if this

central bank stands for anything, it's

staying in its lane on monetary policy.

So, if you think I'm going to wander

into yen policy in Japan, you're asking

way too much of it.

>> Well, it was it it's it's making a move,

that's all. you know, Governor Malcolm,

on the markets, you recently, I think,

warned about

excess um just given the AI trade

speculation. I think that's very much on

the on the market's mind. Do you do you

see signs of that? Thinking of

irrational exuberance of the great Alan

Greenspan.

>> Yeah, we we've been warning really of

two things and and I'm gonna I'm going

to draw Andrew into this. Andrew chairs

the financial stability board. I chair

the vulnerabilities committee. So I

mean, you know, as governor of the Bank

of Canada, I'm looking at at this from a

Canadian perspective, but at the FSB,

we're looking at it from a more global

perspective. And yeah, I I would

highlight a couple of vulnerabilities.

You know, as as we've already said,

look, there you know, there is so much

potential uh to raise productivity

growth uh with the adoption of AI, with

the diffusion of AI. Uh but there you

know we we've seen this before in when

there's a new breakthrough technology. I

mean the the internet proved to be you

know better than anybody imagined

created whole new businesses. Uh but we

still got the.com bubble. U it doesn't

mean there can't be a period where the

market gets ahead of itself and and you

see a retrenchment. So look it take two

sides to make the market. uh we don't we

don't we're not in the business of

giving him investment advice as central

bankers. Uh so but you know from a

financial stability point of view you

you know [clears throat] you look at the

sort of you know

historical benchmarks PE ratios forward

ratios yeah things look stretched

compared to uh those. So that doesn't

mean there there's a problem but it does

mean you need you need to take that risk

on board. The other the other risk we've

been been highlighting is we've seen uh

very large growth of of hedge funds in

the sovereign debt market and to some

extent uh that's been very welcome.

They've been very efficient in buying

and distributing government debt.

There's there's lots of issuance out

there. Uh governments need investors. Um

but a lot of this is being done with a

lot of leverage, very short-term

leverage and that does make you a lot of

it overnight in the repo market. Um, and

that does make you nervous that if there

was a period of volatility and and uh

you haircuts in repo markets went up or

there was some disruption in repo

markets, you could get a you could get a

rapid unwind. Um, you know, again, part

of our job is to sort of markets do a

good job of seeing the risks they face

individually. They have a harder time

seeing the systemic risks. These these

trades are very low risk for each hedge

hedge fund. But when they're all doing

something similar, there could be a

systemic overlay. And the idea is if we

can point that out, the [clears throat]

market can can guard against that risk.

>> So yeah, I mean, look, Kevin refer has

referred to the financial crisis a few

times and he's absolutely right to do

that. And one of the big questions, you

know, at that time or before it was, is

the subprime mortgage market going to

be, you know, in a sense the trigger and

the cause of a wider financial crisis?

And you know, we didn't get that call

particularly right, frankly. But the the

thing that we have to bear in mind is

what we're trying to look for here is

sort of tail risk. You know, is there

something in these markets that could

trigger a wider, you know, a wider

consequence in terms of financial

stability? And that's, as Tiff said,

that's what we're trying to do. You

know, Tiff leaves leads the work in the

financial stability board globally to do

that. So, yeah, we're absolutely right.

So we look at you know we look at the

increase in leverage in in in core

government bond markets. I mean these

markets have changed substantially.

Uh I think the thing we've seen actually

in the course of the last few months is

an increase in in leverage in equity

markets. So you look at hedge fund

leverage and equity markets you look at

uh leveraged uh exchange traded fund

markets those things are changing. If

you look at private credit, you the

questions we're asking is are those the

things that actually can can you can

move from tail risk into a broader

consequence. So then you have to say

what are the channels through which it

can happen. So at the Bank of England

we're doing a second systemwide

exploratory scenario to ask that very

question about private credit. That's

that's our job.

>> Do you see any other broader risks

emerging? And do you agree with the

characterization of stretched for the

market? So I look I mean we are looking

obviously yes we do look at asset

valuations because you are living in a

world I mean you've seen this obviously

over recent months where you've got

quite a divergence between how you know

bond yield bond yields are moving and

how equity markets are moving. Now I

think this a lot of this comes back to

what Kevin was saying about AI. I think

it's explicable in broad economic terms

but the question is you know is that

going to lead to some some wider

stability issues. So that's on the list.

Uh, and then you going back to what I

was saying earlier, they want to reopen

it again, but Frontier AI is obviously

high on the risk as well. So, we've got

quite a list of things that we're

looking at at the moment.

>> I wonder if you, Chairman Worsh, see any

signs of excess, trillion dollar IPOs,

high margin debt that was referenced. I

mean, other things that are going on in

this market that remind you of those

other times.

>> Well, I would say I've been out of this

business for 15 years, but I still have

the scars from the global financial

crisis. I suspect my colleagues do too.

Um, we take risks seriously. Um, and

that's part of the reason why each of

us, I think, at the core, have sort of a

reformer's heart on this. What can we be

doing in the conduct of monetary policy?

How should we be revisiting fundamental

reforms to supervision and regulation?

How should we think about the payment

systems that connect us all? So, this

conference is principally about monetary

policy. I must admit, my first four

weeks at the Fed, my attention's been

focused on monetary policy, but our

governments have tended to give us

larger jobs than that. We take it all

very seriously. Um, I'm not prepared to

sort of make a broad comment denoting

risks that are available in the system.

But I will say this, this is the biggest

time of consequence to each of our

economies, I think, in our lifetime.

Maybe absent the shocks of 2008 and the

COVID shocks, the dramatic change in how

businesses do business, how households

are thinking about employment and

inflation. And so this is a time we have

to go back to first principles. I know

at the Federal Reserve with my

colleagues, many of whom are here, we're

doing that. So I don't want to sound

complacent. At the same time, I do want

to say at least for the United States,

this is a time of huge opportunity. And

if the Fed can deliver on its remit to

deliver prices, I've never been more

optimistic about what the growth engine

of the US could produce.

>> The growth outlook of the US economy

this year is

>> we playing we're playing Mad Libs now.

>> Um, fill in the blank.

>> So I would just say this over the last

four quarters in the US structural

productivity is in the high 2% range. So

potential growth looks like it's trended

up. This is a time that the labor

markets hours worked are relatively

flat. Um history says that we go from

periods of low productivity to periods

of high product productivity. Nothing is

in the bank at this time of consequence.

But uh if the last four quarters are an

indication, which is really largely

before the advent of the new surge in

what artificial intelligence can do, I

think there's reason to be optimistic.

Now, does that optimism convey into

policy in the next six or nine months?

Still too soon to say,

>> but strong strong outlook. Sounds like

>> you're you're you're you're back you're

back to forward guidance. I'm going to

disabuse you [laughter]

>> of of trying to extract that. My view

and my my colleagues I think have said

this better than I. My view is financial

markets and the real economy work best.

When you look at what's happening in the

real economy, you make your own

judgments. Um there has been a tendency

and I take plenty of blame from this

the08 crisis where we were trying to

suppress volatility where we thought we

needed to spoon feed markets to get out

of that. That was the right policy for a

crisis. It is not the right policy for

the time that we have now. And so

sometimes unlearning is harder than

learning and I'm going to keep at it.

>> Okay. So h what are the president lagard

how do you think about the best levers

to boost growth in the euro zone right

now?

>> Capital market union

>> 28 28th regime and boost the venture

capital. Okay. So that that would be on

the growth front. But I would like to

add one thing. Thanks to the veterans at

this podium and a few other people, we

have a strong, solid, robust banking

system which is strongly well

reggulated, well supervised and I think

we should be cautious about what we are

throwing away by way of simplification.

So we do simplify things and I'm

delighted that for instance the uh the

ECB has done away with 40 different set

of declaration disclosures that were

unnecessary out of the 130 plus. So we

have to go through that process but I

think we have to be cautious about how

risks actually move and risks were

squarely in the banking system back in

20078 when we were all together fighting

this um global financial crisis. Risks

travel fast and there is no limit to the

imagination of those in the financial

sector who are trying to make money as

is their business and who are taking

risks. But the question is really who

eventually ends up taking the risk and

sweeping the mess. So I would contend

that this regulatory work that we did at

the time we need to be very attentive uh

as Andrew suggested to make sure that

the risk that have moved and traveled

afar through different structures

um bodies under different names are also

looked at carefully and that the right

measures are taken to protect the public

good and to protect the principle of who

takes risks bear the responsibility that

goes with it.

>> The other big topic that I know that you

all think about and is part of your your

remitt is is the balance sheet and

chairman Worsh you have talked about

before you became Fed chairman that the

balance sheet was too big in the United

States. So it's at 6.7 trillion right

now. What level would you be comfortable

with it at?

[laughter]

>> No forward guidance. no forward guidance

and and I'm not going to give balance

sheet not going to give it's the balance

sheet. Okay, just we're just among

friends. Um we have a task force for

that too.

>> Great.

>> Um uh

>> we're going to play drinking game on

task force.

>> I I I'll say this. There is no secret

that from the 2011 period when I was

leaving the Fed through now, I wanted uh

the Fed's balance sheet to be smaller

and I long wrote about and described

interest rates should be the dominant

means through which we make monetary

policy. If we're in a crisis, that could

be a different set of rules. It's always

struck me that interest rate policy is

the fairest of the broad constellation

of our citizens. interest rate policy,

whether we move it or up or down,

transmits its way into uh a new

mortgage, credit card debt, transmits it

way through a lending channel and credit

channel. I've always had a view that the

balance sheet works mostly through asset

prices, works mostly through signaling

effects. My four weeks at the Fed

haven't disabused me of that idea. Um,

as we're hearing an alarm, that must be

my way of saying that I've gone too far

on the balance sheet.

>> [laughter]

>> But we have a task force that you'll

find out of outside people that are

going to debate this topic, bring it

back to my colleagues and me to see

whether we can have a judgment about

whether the balance sheet should be made

smaller. The only thing that I'll repeat

here, which I've said repeatedly, is if

there's a change in balance sheet

policy, it'll be a change of my

colleagues in the FOMC and the board.

Those decisions will be well deliberated

publicly, well understood and will not

be implemented until financial markets

have come to understand what those are.

It took us about 18 years to find our

way into this big balance sheet which

again in my biased view borders on

fiscal policy. Took us 18 years to get

out of it. It won't it'll take us more

than uh 18 weeks to to to bring it down

to size. I'm open-minded on the

question. We're not going to prejudge

it. But I want interest rate policy to

be the working or for monetary policy.

>> Governor Bailey, you've been focused on

the balance sheet. I I guess at one

point we were asking how big can your

balance sheets get and now I'm wondering

how small they can get.

>> Well, I look, there's a huge there's a

nice sort of sense of irony I appreciate

from this conversation because I, you

know, I've been accused of having too

big a balance sheets and reducing it too

quickly. So [laughter]

um you know uh well really um I so so

can I go back can I go back to forward

guidance for a moment because I've

really issued forward guidance on the

balance sheet. So I really don't step

into this world of saying we want ample

reserves we want big reserves small

reserves. My line has always been we

will meet the systems demand for

reserves because that's the system's

demand for liquidity. Now we will also

spend a lot of time by the way

understanding why the system wants the

liquidity it wants. Uh and also you know

the key other point which Kevin has made

very forcefully is that's the way we

actually implement monetary policy

through the through the short-term

interest rate

>> transmitting out of our balance sheet

into the into the system. Uh and that

and that works very well. So you know we

our world is look we we want we will

meet the system's demand for reserves.

We will we will seek to understand very

closely why it's doing that. The other

policy I have is that I want to take

interest rate risk off the central

bank's balance sheet because you know

with the public balance sheet you

interest rate risk should be in the

market not on our balance sheet and so

that's why we're moving to a repo asset

side of our balance sheet because that

takes the that takes the interest rate

risk off our balance sheet which is what

should be the case. You mentioned the

you alluded to the political heat that

you get over this issue. Does that

influence the way you think about it at

all? I know it's not supposed to.

>> No, I I think we we must have, you know,

a sensible policy for moving to, you

know, a system where our balance sheet

reflects the systems demand for

reserves. So, yes, it went up during it

went above that level during the QE

period. It's coming down to that level.

Uh I I want the interest rate risk off

our balance sheet. Those are the

policies we're pursuing and I think

those are the right policies.

>> Speaking of politics, do you get let off

the hook, Governor Mlin, because you're

because the prime minister used to be in

this seat?

>> Uh, you know, we get some free advice

from uh elected officials across the

country. Uh, and you know, as I tell

them, I I appreciate

understanding what's going on. It's a

big country. I appreciate understanding

what's going on across the country, but

uh I don't appreciate um telling me what

we what what what we should do with

interest rates. Uh you've got your job,

we've got our job u and you know that

needs to be respected. So I'll just come

back to the balance sheet. Um you know,

interestingly, if you if you compare

different central banks, you you'll see

you'll see a pretty wide range of sizes.

Uh in Canada uh we didn't do QE in 089.

Uh fortunately in Canada no banks

failed. Uh we we did get a big shock but

it wasn't so big that we needed to

invoke that emergency policy. Uh we did

use QE uh in the pandemic. It's the only

time we have used it. Um but the fact

that we only did it once meant that our

balance sheet wasn't as big to start

with. Uh and uh we we let the b the

bonds run off. So, our balance sheet has

run back to its new steady state. Um,

and if you compare central banks, as I

said, the size of the balance sheets can

be pretty different. I mean, Canada's

balance sheet as a percentage, Bank of

Canada's balance sheet as a percentage

of GDP is about a third of the Feds.

>> Um, now look, Canada's not the the

world's global reserve currency. So,

yeah, there might be some differences

here. Um but I you know I think I think

uh the results of of Kevin's um task

force is going to be very informative to

us. And the other thing I'll say about

balance sheets is um it's a very inside

baseball kind of discussion. It's not

the sort of thing most Canadians are

really that engaged in. Um but it it

does you know it is how we you know

there is an element of how do we

implement monetary policy? what is the

demand for reserves? Uh we've spent, you

know, the last couple days talking about

new kinds of money. What do those do

those what do those potentially mean for

our balance sheet? So the these are

questions we need we need some uh

thinking on.

>> In the in the short time that we have

left, President Lagard, I did want to

get to you on this political point and

because you have been a forceful voice

for central bank independence. Um, I

know you continue to to do so and and

you I mean unlike these these guys, you

have to battle more than 20 different

governments and leaders. 21 21. So,

>> um, you're you're a pro at that. I'm I'm

just I'm curious if you think that there

are if you look across if you look out

and and see serious risks to central

bank independence, especially in light

of the Supreme Court ruling that we got

in the United States letting Fed

Governor Lisa Cook keep her job.

I think you know the best way we can

actually all do our jobs uh is to be

number one accountable number two

independent and the two come together

you know and I go to the European

Parliament on a regular basis to report

on what we do to explain what we do

that's the counterpart for this

independence that we have staying in our

mandate the entirety of the mandate is

also the cynical unconition for

deserving that independence which is a

precious good without which we would not

do a good job. That's my view.

>> How did you feel about the Supreme Court

ruling, Chairman Worsh?

>> We were doing so well. Um

so before the Supreme Court, the Fed

acted independently and followed its

remitt. After the Supreme Court ruling,

the Fed will continue to do so. Um uh I

read the opinion on the plane over here.

Um, one of the secrets of the

productivity-led economic growth that I

was talking about at the outset is

because of the constitutional design in

the US. It's the foundational element

that has given us 250 years of

outperforming expectations. Uh, I

believe in article 3 judges. I believe

in the rule of law. uh we'll follow the

Supreme Court decision, but daytoday the

decision reaffirms what President

Lagarde already said. We are calling

balls and strikes as best we can. We're

taking seriously the reform objective

and um and we're going to deliver on the

high promise that Congress gave us to

deliver price stability in the context

of our dual mandate. And when we do

that, we don't have to worry about

politics. We don't have to worry about

judicial intervention. we get to look in

front of us because it's a challenging

step.

>> Okay, we have a minute left. So, I'm

going to ask everybody one quick quickie

for everybody. Two quickies actually.

Um, Governor Bailey, I'll start with

you. So, f economic indicator right now.

>> Sorry, the

>> your favorite economic indicator right

now.

>> Oh, that's a trap question as well. Um,

you see that that that's a trap question

into forward guidance. Uh,

>> god. Thank you, brother. [laughter]

>> I'm trying.

>> I'll tell you what, I'll I'll answer it.

Oh, there you are.

>> My [laughter] my inflation forecast.

>> Oh, there you are.

>> Governor Bailey, you have to answer.

>> Well, look, we look at a whole range of

data.

>> Oh, God.

>> I mean, honestly, if you sat through our

meetings, you would see more data than

you could ever dream of. Um, the only

thing I say, look, I I'll say this. I

spend a lot of time going around the

country and I talk to a lot of

businesses and it's absolutely

imperative that we stay in touch with

the economy.

President Lagard,

>> inflation outlook, balance of risk,

underlying inflation, transmission of

monetary policy. Thank you, [laughter]

>> Chairman Worsh.

>> I guess I have the last word. um with

the new data with the with the data

project the data task force my hope my

aspiration

>> is that 9 12 months from now we're going

to be using new technologies to

understand what's happening in the real

economy in a contemporaneous real-time

way that positions us as central makers

to make better decisions that we're no

longer going to have to rely solely on

data that we get from government

agencies with mismeasurement problems

that have surveys that are no longer

relevant. That every business we know

that are leading in our country are

using new data sources to make better

decisions. My favorite uh data is upon

us and if we do our jobs, we'll be here

a year from now and we'll say we've

discovered data that helps us make

better decisions and we live up to our

promises. We strengthen our credibility

and politics stays at bay. least

favorite economic indicator.

>> Um the conventional wisdom um uh the

conventional wisdom that we hear from

time to time tells us nothing. Monetary

policy works with nor with long and

variable lags as we know and um many of

these indicators are echoes of history.

We need indicators that tell us what

things are. We look out our window

today. So when we make judgments when we

next convene, they're as close to real

time as possible.

>> I thought you were going to say the dots

since you didn't do one.

>> I I'm going to let one panel discussion

go without me sort of wagering on the

dots. Um there will still be dots for a

short time um at the very least, but we

have a task for that and we'll revisit

it.

>> Do you have a least favorite economic

indicator, President Lagard?

>> What did you say? least favorite

economic indicator that gets too much

attention.

>> Those that are wrong?

[laughter]

>> Governor M, help me out.

>> You know what I'd say is a lot,

especially a lot of the monthly data, it

can be very volatile and you know,

sometimes the market overrotates on on

the last number. You you got to kind of

you got to correlate it with other

things. You've got to you got to smooth

it a bit. um,

you know, the last monthly number is

never going to be the best indicator.

>> So, I'll give you one that we're

wrestling with at the moment and have

wrestled with for years and it's

obviously relevant, which is uh, oil,

oil and gas futures prices. So,

>> they are terrible indicators in history.

The problem is that everything else is

also a terrible indicator. [laughter]

>> Very good. Finally, you know, when we

were coming into this year, everybody

was talking about rate cuts. Is anyone

still talking here about rate cuts? Show

of hands.

>> Well, that's a nice try. That's a nice

try at forward guidance. [laughter]

>> All right. I tried. Thank you all very

much for the cander [applause]

and for your turnout.