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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 know, 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 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 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 the '08 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. >> 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 2007 8 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 a far 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'll 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, there 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. 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 system's 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 0809. 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. Um, 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. Um, 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 uh 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 had 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 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 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 synanon condition 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 Walsh? >> 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 day-to-day 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. Um, >> thank you, brother. >> I'm [laughter] 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 W. >> 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 when 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 force 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 that 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've 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. >> [laughter] >> Well, that's a nice try. That's a nice try at forward guidance. >> All right, I tried. Thank you all very much for the cander and for [applause] your turn. [music] >> [music] [music] [music] >> Hey, heat. Hey. >> [music] [music] [music] >> I hope you enjoyed the policy panel. I know I certainly did. The central former forum, as we've just shown, always brings together the leading voices of today. Not only that, but we invest in the next generation of economists who will shape the debates that will follow. Our final item of business this year is to recognize the best of this year's young economist submissions as judged by an expert panel while also taking your votes into account. It's my pleasure to now hand over to President Lagard to award the prize. Thank you. >> [applause] >> So congratulation to all the finalists of the Young Economist Price. For all of us, you're playing a key role. Not so much because you're going to fund our pension fund going forward, but also because you are feeding us with new ideas, with your creativity, your research, and your energy. So you are clearly important to all of us whether we are professors, central bank governors and any other smart including journalists actually who have been paying close attention to what you do and what you say. So to all of us thank you very much. So yesterday we had the pleasure of hearing this excellent group of PhD students and you shared your research with us. Beyond that, I also hope that all of you you had a chance to go and listen to their peach at each and every stand where they were presenting their views, ideas and the research that they have conducted. Now reaching this stage of the competition I have to tell you in case you didn't know is in and of itself no matter who is the winner a real achievement because there were more than a hundred applicants who all were PhD students all came from the best universities and they were all very very good but you cut uh that group of the top 10 and you are as a finalist a success. So bear that in mind when I'm going to have to give the name of the one who is selected. So you papers actually speak directly to the theme of this year's forum. How do we shape Europe's future and they remind us how much we gain when we bring new voices, new ideas, new evidence into our discussion behind the scene and to select actually the one who is the winner. It's not just the votes that you all have registered uh earlier on today. There was a selection committee which has been extremely busy evaluating the finalists papers. They took into account academic quality, policy relevance and of course they took into account the votes of the participants through the online voting portal. I'm going to actually ask them to please stand up when I pronounce their name because they did the job of reading all these papers. You did not. Well, some of you did, but not so many. So, I'm going to ask you to stand up. Seriously, Jordi Gali, please. [applause] Where is he? Is he gone? >> He went to the L. >> Elen Ray. Elen [applause] and colleagues from the ECB. Philip Hartman, the chair Joa Souza and Sebastian Schmidt up. [applause] Thank you to all of you for this work that you did for us. Now I would like to ask you yet again to applause because the finalists are going to join me on stage. Please join on stage now. Come on. [applause] >> [applause] >> I think I think you're supposed to approach one at a time if I understand and I'm going to give each of you a certificate that includes your name and the fact that you are a finalist in this exceptional contest. Now, do I hand over now one after the other or do I announce the one who is winning? >> Stage director, please >> and then only the winner. Oh gosh. Okay. I'm sorry. I'm sorry for you all. It's a It's a bit grueling, but I have to do that. So, shall I receive them? Okay. So, calling you to join me is Simony Zanella Cavalo. >> [applause] [applause] >> Pedro Martinez, Buluera, [applause] [applause] Max Martin, Congratulations [applause] Marina H. [applause] Congratulations [cheering] [applause] Luigi Falachroni. [applause] Congratulations [applause] Lenard Nman, [applause] Katarina, Nicolipi, [applause] Jirro Desar sounds French to >> [applause] >> and Chenuan Shi. [applause] Congratulations. So, now it's time to announce the winner of this year's Young Economist Prize, who will be awarded $10,000 and a trophy, which is going to be handed over to me now. And the winner is Leonard Nearman. [applause] [applause] >> [applause] >> just just to just just for those who don't remember you, you're a PhD student at the University of Cambridge and your paper was on decomposing the investment channel of monetary policy. Thank you so much for your contribution and thank you to all of you as well. [applause] So you can stay, you can go, whichever is your favor. I'm going I'm just going to give the uh the concluding remarks and that's going to be short. So we've now come to the end of the 13th forum of on central banking in CRA. This annual gathering has been long part of the ECB institutional fabrics and I think that there are two reasons why it is so important. First, as the past two days have shown, CRA is where we come to challenge our own thinking. Fresh perspectives and rigorous debate and what lead to more informed, more robust decisions, deeper research, better teaching for each and every one of us. And Cintra, for those who have attended many times, has always delivered that. The themes of past forums have captured the zeitgeist, the opportunities and challenges that Europe face in each period. This year, shaping the future, innovation, growth, and stability was no different. It brought together issues concerning people, technology, and policies. We discussed on the stage and on the sidelines a wide variety and range of topics from productivity to regulation to financial stability to migration to tokenization to trade. We even discussed the optimal design of dikes, remember? And thanks to Sarah, we know that AI agents are just as bad as teenagers. And this year's topic cut across so many of the themes that we discussed. And this theme was clearly artificial intelligence. And no doubt we will be discussing that further and deeper in years to come. Some topics at Cintra had have been stickier than others over the years. The productivity gap has been one of them if you look back at the record and we just keep coming back at it. And as we heard yesterday, AI is likely to be another one of those recurring theme. Now whether a topic is new or whether a topic that we return to, the value of CRA is the same. The chance to engage with some of the leading researchers in the world on the issues that matter. the most and to bring those insight back into our decision and processes as a test of that actually because I observe very much all of you. There are not many of you who during the debates look at the emails. A few a few do I see you over there [laughter] but very few do that. It means that the quality of the interventions, the quality of the papers, of the discussion and of the panels are really at a very high level. Otherwise, you would all be scrolling and looking at something else. Now, the second reason uh runs deeper because CRA is a place where we actually reconnect as a community. It's a bit incestuous, granted, but we reconnect as a community. You've all known each other for a long time. and CRA operates its magic because it's a special place. So, we're very grateful to the Portuguese authorities and to our friend Alvaro who has facilitated all this and brought us actually together. There are a few Portuguese friends in the room as well and I thank all of them on your behalf. This year we welcome Yeah. [applause] >> [applause] >> So there were as I mentioned on the first day 11 new governors who joined us in that capacity for the first time. But there were many many olden faces and veterans of Cintra who came back together and welcomed the newcomers in in their group. These friendships renewed these new connections made make CRA a hard place to live. Okay, hands up. Who wants to go now? None at knew it. We don't want to go because it's such it's such a nice environment and a place where we can actually pick each other's brain and debate ideas and challenge each other. And it's always difficult to leave friends. Anyway, there is a word which I learned from my Portuguese colleague which is in Portuguese which says exactly that and it's sa sa describes this bitter sweet longing for someone or something you love felt more keenly as you prepare to say goodbye. The warmth of the moment already tinged with the knowledge that it is ending. Another way to say if you didn't call then I know it's you. So that is why CRA leaves us with each year in that state of mind. Sa but you know what it draws us back to CRA. So there will be another CRA. That's the announcement that I want to make right away. And the dates have been set but I don't have the dates in my briefing material. So by way of closing, I would like to thank the organizers, the speakers, all of you, those who asked questions, the hard one, and those you thought were the dumb ones who were always smart. Anyway, now one reassurance I want to give you before I wish you all a safe journey back after we've had this excellent dinner organized by the Portuguese National Central Bank. I have another set