test test good morning good morning what's going on guys so jerome powell is going to be speaking today and we're going to be live streaming that event so this live stream starts in about three minutes for jerome powell and um it should be fun to see how it influences the overall market so let me go ahead and pull this up and i will be showcasing it in just a couple of minutes all right all righty can you guys see it okay all right what's going on guys hope that you guys are all doing well see how this moves the market all right so okay should be starting any second now so okay uh it should have started already looks like they're running a little late of course thank you guys for tuning in as well there it goes so inflation is back and for the first time since before the 2008 financial crisis the european central bank the federal reserve and the bank of england along with a host of other central banks are all tightening monetary policy but the threats to growth are immense too policymakers face a delicate balancing act between stamping out inflation and avoiding a recession ladies and gentlemen for traversing this narrow path francine lacqua editor-at-large at bloomberg will be moderating the session from scene the floor is yours claire thank you so much now we're here at the ecb forum on central banking every year it's very clear that cintra really dominates the attention of investors but not every year is like this one now for one it's not untold quite as windy as it was yesterday but that of course is not what makes this year so special and so unique we're entering a new chapter for monetary policy a divergence for almost 15 years of policy experimentation in an age really defined by stubbornly low inflation now this year that has changed as claire was saying our policy panel needs a little introduction but i'm going to do it anyway jerome powell is the chair of the us federal reserve andrew bay the governor of bank of england augustine carson's governed the bank of mexico before becoming general manager of the bank for international settlements and of course our host the president of the ecb cristina now just a reminder between them these institutions hold nearly 20 trillion dollars worth of assets on their balance sheet and they've of course maintained ultra low even negative interest rates for the better part of a decade with little disruption they now have the unenviable position of presiding over the great unwinding of policy that may have permanently changed the architecture of global markets so thank you all for joining us we're going to have i'm sure robust discussion over the next 90 minutes uh mr carson let me start with you as a central bank of central banks you know central banks in general have faced really a succession of crises over the past years but also some of the structural factors such as the green transition digitalization and increased onshoring so how different will the future of inflation be from now on how different will be from the last decade well i mean a very very important change that has taken place in the last i would say two decades or even more if for example we compare this period of inflation with the 70s is that we have much stronger institutional frame monetary frameworks and institutional framework for central banks and i think they're far better positioned to combat inflation if we go back 70s and 70s have become a natural reference uh we were at the time where for example the bretton woods was failing you don't have more i would say instability in a system when you are for example revising your exchange rate regimes and that is not happening today i think that the period of this inflation there established very very strong strong bases to to create new and more nimble more agile better prepared central bands and i think for example the design of the acv our host here today in a way i incorporated many of those learnings so i mean when you when when you you are in charge of of combating inflation what you need to be able to anticipate is that sometimes you will be surprised because there are many elements that affect inflation and that they are not directly under your control and i think to a large extent this is what we are seeing today and i i see a very very strong ability of all central banks to analyze to incorporate that information and to react for me if you look very careful what is going on right now in the last two years we have seen dramatic changes in the environment we went from having a situation where depression was felt it was was feared the inflation was coming to a very quick rebound with the but with the with the vaccination and so on and so forth and we moved tremendously quickly from an environment of fearing deflation to fearing inflation and that has been compounded by the russian crisis i have to say monetary policy as nimble as it can be cannot respond with that with that without a legacy so i think that the the the knowledge of the new form of inflation is being learned and is being responded so i'm very positive that this institutional framework and strength of central banks today will take us to the goal where we want to be relatively do you agree i mean when you look at complexity and uncertainty in this way but we forget about it or is this really a new frontier i agree with everything augustine said about institutional progress but i would say i would add this we've lived through a period of disinflationary forces around the world this is uh globalization aging demographics low productivity technology enabling all of that and that was so we've been in that world where uh inflation was really not a problem in most of the advanced economies most of the time since the pandemic we've been living in a world where where the economy is being driven by very different forces and we know that what we don't know is whether we'll be going back to something that looks more like or a little bit like what we had before we suspect that it'll be kind of a blend but in the meantime we've had a series of supply shocks we've had you know very high inflation now across the world certainly through all the advanced economies and we're at augustine's point where we're learning to deal with it we have our job is to find price stability and maximum employment in the case of the fed in this new economy with these new forces and it is a very different exercise than the one that we've had for the last 25 years nonetheless the goals are the same so i don't know whether madame again you know after this volatility do we go back to something that resembles the last 10 years or is it you know something else completely i also agree with most of the points that augustine made and and we don't have to agree between us because we always do but i don't think that we're going to go back to that environment of low inflation and i think that there are forces that have been unleashed as a result of the pandemic as a result of this massive geopolitical shock that we're facing now that are going to change the picture and the landscape within which we operate if i look at our euro area for instance we have record low unemployment we have inflation expectations however and precise and and with the pinch of salt that was discussed at the last panel which was excellent we have inflation expectations that are much much higher than they were that's for the internal matters but if you look at the rest of the world a lot of the movements that we've experienced in the last 20 years was predicated on globalization on the breaking down of supply chains on the reduction of cost on the just on time that has changed and will probably changed continuously markets going up right now it's a system that we are not certain about at this point in time which is much debated what's going on some would argue that globalization will continue in a different format some would argue that that the place where you manufacture the place from which you provide services is good going to be determined by different factors than just cost it will be about cost as usual but what the heck it's also going to be about where do i locate my services where do i employ people where do i reduce my costs and are those areas geographical as well as that the place where you manufacture the place from which you provide services is going to be determined by different factors than just cost it will be about cost as usual but it's also going to be about where do i locate my services where do i employ people where do i reduce my costs and are those areas geographical as well as political actually foes or friends and do i have some predictability about the future of my production or the providing of my services and the third factor that is going to change the scene from my vintage point is the way in which we produce and i think that the shift that we're observing in europe certainly towards green transition is also going to change dramatically the way in which we operate and all those forces are going to produce inflation deflationary impact that you know are still to be measured but in the short run i have some ideas as to where it's heading and we'll get back to those ideas shortly governor do you see this as a sea change for for the longer term future yes i do i mean i mean i think first of all we have to say that unquestionably of course our task is to return to low inflation but i i think if we see this you know every day that in in fulfilling that i swear it's not my servant everything's green on my side what can turn out to be structural change and some of it i think you know i would say it's already getting that so i think covert is leaving a structural legacy on labor markets and the way they behave which we're already beginning going to see i i mean i think suddenly the european security situation is chat changed it'd be buffering to us i just want to make sure that you guys know it's not me christine was saying that's affecting supply chains uh it's affecting the resilience of the of the whole supply system and i probably mentioned um climate change change francine i mean i always say that this is not because some people sometimes say there's not some sort of diligent activity about central banks yeah the reason that we're not yeah we're not in the lead on it clearly but the reason we have to take it seriously is because it is affecting our world and actually it will get worse that's a sad trap of life um and we have to here we have to in a sense under stand as that and understand you know the reason that we're not you know we're not in the lead on it clearly but the reason we have to take it seriously is because it is affecting our world and actually it will get worse i mean that's a sad fact of life um and we have to here we have to in a sense understand that and understand what effects it will have and how we respond to it so these structural changes you know are very important in our landscape so as these complexities or as these you know sands are shifting is slower growth much slower growth an inevitable trade-off from trying to deal with inflation uh so i would say that um if what we see for example is the redivision of the world into competing geopolitical and economic camps in a reversal of globalization that certainly sounds like lower productivity and lower growth and in many parts of this side of that you see you see aging demographics so a shrinking workforce and you see economies that are growing more slowly and and whose workforces are not expanding so that's um that's certainly a possible outcome and i think probably to some extent a likely outcome and in the shorter term can the economy you know can the u.s economy actually deal with you know a possible onslaught of interest rate hikes so the us economy is actually in pretty strong shape so if you look back a year the u.s economy grew more than five and a half percent it was really the big reopening here and so we had expected this year to be that that growth would moderate to a more sustainable path um we also of course are raising interest rates and the aim of that is to slow growth down so that supply will have a chance to catch up we we hope that that growth can still remain positive um but if so if you look at it the strength of the economy households are in very strong financial shape they've still got a lot of excess savings from from you know forced saving from not being able to travel and things like that and also from fiscal transfers so households are overall not not every household uh and not not the ones at the lower end of the income spectrum but overall in strong state the same thing is true of businesses very very low rates and default and things like that lots of cash on the balance sheet um the labor market is tremendously strong you know still averaging very very high uh uh job growth per month so overall the u.s economy is in uh is is well positioned to withstand your monetary policy we think it but is it automatically a trade-off between fighting inflation or taking care of the economy and how far are you willing to go with interest rate hikes so i guess i'd say it this way our aim is to is to have growth moderate it's sort of a necessary adjustment that needs to happen so that again supply can catch up it could be supply of workers it could be it could be time for the supply chains to uh you know to improve so the sense of that is that if we can get right now supply and demand are really out of balance in many parts of the u.s economy labor market being a big example of that we need to get them better in balance so that inflation can come down and that's the aim of what we're doing now we don't have precision tools obviously monetary policy famously a blunt tool that is our aim that is our intention we think that there are pathways for us to achieve that to achieve the path back to two percent inflation uh while still retaining a sustaining a strong labor market we believe we can do that that is our aim there's no guarantee that we can do that it's it's obviously something that's going to be quite challenging and i would also say that the events of the last few months have made it significantly more challenging thinking there particularly of the war in ukraine which has you know added tremendously to inflationary pressures around food and energy commodities and agricultural chemicals and industrial chemicals and things like that so it's gotten harder the pathways have gotten narrower nonetheless that is our aim and we believe that there are pathways to to achieve that president can you talk to us about this fine balancing act for europe and what that means you know what i find extraordinary is that sort of 10 15 minutes into this debate we haven't really used the word energy and certainly in this part of the world the energy shock that we have we have suffered our suffering and probably will continue to suffer has had a major impact and i think this is not specific to to europe but there is certainly a dependency of european countries and the euro area is certainly a point in case to external supply from foes um and and that has has had a major impact on uh prices uh it is certainly a very driving force a strong driving force of uh the inflation that we have experienced in the last few months this has been as you said jay ex exacerbated by by the war and i think the proximity of europe relative to the uh the the the war scene has had a probably a more significant impact on the price both of energy and of food which are clearly very important components uh to take into account including in inflation expectations as as was discussed earlier but we also have you know from you know that that then is a series of supply shocks that are that are hitting the european economy but we also have this recovery that is very much underway that is certainly driven by services because of the the swing that we've observed from goods to services and which is also you know supporting uh the economy we have very low unemployment numbers high employment participation some of it is more attributable to public service jobs than private sector although that is also back to pre-pandemic moments and we have a couple of other items such as significant savings that that are still to be used hopefully or not and and we have fiscal policy and the fiscal policy that we are seeing at the moment is roughly in the range of one percent gdp uh but you know we we need to see how fiscal authorities uh move where they move and we certainly hope that they will move in a targeted temporary way in order to make sure that they support the most vulnerable and and not in a broad uh and discriminated fashion as as we have unfortunately observed so far and why do you prefer actually with the more gradual approach so yesterday you were trained in 25 basis for monetary policy for monetary policy don't forget i didn't say gradual full stop i said gradual but optional and i think it's it's a combination of the two that actually matters for us um you know moving gradually is uh certainly appropriate in times of very high uncertainty but as the uncertainty will clear in on various accounts we will have to certainly be less gradual and give more way to optionality but we have both of them in combination at the moment optionalities uh being also a very critical uh aspect of our determination mr costner you've been pretty vocal actually on what central banks should do do you think they need to cut faster well i mean i think every everyone should react according to their own circumstances what is very satisfactory at this stage is that pretty much all central banks have a starting address as they address the issues i mean one way of dealing with this of it is is through words to recognizing you have a problem to saying that you will address it and pretty much all have already entered into the field of action so central banks have been acting in consequence i have to say the level of interest rates worldwide have adjusted the level of interest rates if you look them from the yield curves they have been increasing quite substantially what we can say is that global financial conditions have tightened substantially because we don't have to we we we shouldn't forget that this in a way has become a global phenomena i mean inflation around the world has been increasing now each country as as as christine and the android j has been saying each one face different dynamics of inflation i see some of you guys are having issues if you guys see some form of delay i mean you guys can just refresh your screen and it will pop the live stream right back up and it should be as close to live as possible so i appreciate it and i hope that i earn your thumbs up thank you a full transition from a low inflation environment to a high inflation environment where this high inflation gets entrenched and for that basically you need to prevent this visual cycles to kick in and pretty much all of them are addressing it in these vicious cycles labor markets are very important and labor markets are very different across the world therefore i think that there is no one recipe of no one remedy for all but what i'm seeing is that pretty much all central banks have been addressing the issue in a forceful determined way according to their own circumstances mr custom does it mean that you would be in favor of you know front loading hikes so that it's a powerful message maybe to people you know for a lot of the citizens well let me let me let me give you a good example and to introduce a little bit of a different flavor here i come from emerging markets and if you see how emerging markets have been acting this time around compared to other periods of very high interest rate increases in advanced economies or the expectations of fast increases in interest rates they have acted them quite well you know i mean if you see the more recent the episode was that temple tantrum where many emerging markets suffered dramatically with the expectation of higher interest rates my own country mexico several of our crisis have been associated with rapid increases in u.s interest rates but we have learned our lesson and so what you see is emerging markets traditionally were the ones who would increase interest interest rates at the very end now they started very early on and what you can see is that they have managed to keep their exchange rates quite stable traditionally in emerging markets exchange rates was a very important source of inflation so now they're still facing the sources of inflation from the commodity shocks uh from from energy from world aggregate demand but not the ones that could have been inflicted by the movement in the exchange rate so there you see that the different central banks can act at a different pace for them it really was critical to act forcefully and very very very very early on in the game but that that's not the circumstances you see around so i mean i would say that that that that that the each each each central bank is playing it's it's its own game because it's different circumstances there's about three more minutes until the market opens just a heads up for you guys we opened the door for 50 basis points well i think the way i would frame that it very much goes back to what the others have been saying and as christine was saying we are being hit by a very large national real income shock which is coming from outside there is uncertainty around two parts of that in terms of marginal policy one is of course the eventual scale of it because it's unfortunately still evolving secondly the impact of it precisely how it passes through into the economy and what the effects of it are but the scale of the shock is is very substantial and in and of itself will have an effect a big effect because it will reduce domestic demand and it will pass through into the labor market and it will pass through into inflation monetary policy has of course a very important role to play because because it you know lacked alongside that shock and it's very important as we said this is where we come to the language that we use that it of course is it is there also to tackle the second round effects as they come through price setting and wage setting so the message that we we gave and was in the language of our last meeting as you as you rightly said was that if we see greater persistence of inflation our second round effects then we will act more forcefully and we will have to act more forcefully now in terms of your precise question what does that mean well of course i'm not going to say what it means at our next meeting because you know our next meeting is still a month away a lot a lot will happen between them what it would say to you is that of course it leaves options on the table and that's very deliberate very deliberate i mean people i want people take a message away from that it's quite clear that as we respond to this shock uh we we want to have those options on the table for precisely the reason that augustine has just said um you know there will be circumstances in which we will have to do more we're not there yet in terms of the next meeting we're still a month away but that's on the table but you shouldn't assume it's the only thing on the table that's the key point but governor for you personally would you be leaning towards 50 basis points no because i'm going to see what happens in the next month um you know i'm afraid one thing one thing that is only present in our system is that we make we make policy meeting by meeting and there's always another meeting if you can only guarantee one thing in mutual policy is that there's another meeting is it actually annoying that market you know that markets or reporters always try and and understand you know some of this very personal thinking on the interpretation for example um sure j pal i mean i tried my luck with governor bailey but how do we how should we be thinking about this like is it you know markets reporters trying to really always get just that nugget piece of news yeah well certainly there's a lot of that going on i would say but no i i guess i would continue to put a more constructive spin on it but the markets and market participants are always wondering what we're going to do they're they're always wondering what we're thinking and when when market moves happen that's really a constructive thing it's never going to be exactly what we what we're thinking but nonetheless it's constructive that that the market in effect is doing your work for you if it correctly understands you're all right mark you just opened that's a maybe a more constructive way and is it correctly understanding what you're saying right now i would say by and large i think over uh since last fall when we when we pivoted uh to uh to raise rates and get where we are now since then markets have been uh pretty well aligned i wouldn't bless any particular day for example but pretty well aligned with where we're going and and right now you know the market pricing is pretty close to where the the summary of economic projections from what was it two weeks ago was so my colleagues and i wrote down numbers for the end of this year for a policy rate between three and three and a half percent and markets are broadly right in that space somewhere and then for for next year between three and a half and four percent so broadly speaking i i think it's working and you know we we're all everything we say in terms of forward guidance to your point is always going to be conditional on the things that happen between you know between now when you give the guidance and when the actual event happens and sometimes markets can forget about the conditionality part but is there a problem actually with with forward guidance in this kind of environment because it gets priced in straight away so it feels sometimes like you know markets lead and central banks follow because of the forward guidance it doesn't really feel that way at all from where i'm sitting it feels quite the opposite uh and no it as i said i think this is i think people will look back on this period and say that we were able to have financial conditions tighten quite substantially and we've only we've only had three meetings at which we raised rates nonetheless the forward rate curve is pricing in you know a rate path that looks a whole lot like the the summary of economic projections that my colleagues and i submitted in june so that's a good thing that's the market understanding and finding credible what we're what we're writing down and of course it's all highly conditional but nonetheless i'd say that's a positive thing yeah do you agree with them again is it a positive there it goes well i would agree you know from from our vintage point we are on a normalization path we have seen signaled that very clearly we've started that back in december and you know the the the key assessment is the assessment of the medium-term outlook the variables that we look at the data that we look at i think you know everyone is aware of that and most people operate on the basis of the same data the same information and i think that our reaction function is what matters and as long as that is understood the fact that we are in this normalization path that we are gradual but optional that we're going to be data dependent we've indicated very clearly what's likely to happen in july uh well yes what's likely to happen in september yes and you know in in in the path that we are on i think that markets have full understanding and appreciation of what we are doing how we're doing it and then the level of uncertainty as it clears will probably help us towards this optionality that i was describing earlier on government again do you agree actually with the market function so far as they broadly understood what you know the central bank's trying to do yes i think they have i i think the tricky thing that you see certainly i would say we see is that you know we can obviously see direct market pricing markets still dropping market prop curve which prices in what we're going to do we also as you probably know we just started doing this recently publish uh a market survey at the same time as the meeting so that actually shows a lower path of rates so we spend quite a bit of time understanding the difference between those two i don't think it's actually hard to explain because i think the under the underlying reason is that the market curve prices in the risk and the risk is on the upside and i would agree with that so whereas whereas the survey is a straightforward um you know point-to-point number the curve has got got the risk in it so i think you know for me the best way to look at that difference is the risk but that that is a risk in that sense it's a it's important to see that you know that perspective yes absolutely not to get ahead of households or to have to become big-headed about it but there's a point that was made in the previous panel which we all agreed over lunch which is that it's not it's not a science what we're doing there's an element of art i know whether you characterize it as art or not it is not just driven by sciences and and we know that models have had they they shortfalls uh particularly turning points so there is also that element that is sort of uh privy to the deliberations that we have in our various governing councils and fomcs and what have you yeah yes can i just add we're we're talking a lot about markets and how we react to markets actually to christine's point we're really the way we're thinking about it is what what policy setting do we need to put to put down to achieve the real economy goals that we're working on you know that we and that's that's what our we're not thinking well let's try to match up with the markets we're thinking what's the right policy based on our you know the incoming data and and that that again that's what we're thinking about yeah and i want to go back to the real conversation a second but mr carson what do you make of some of the you know what we've seen in market volatility is it is it just a readjustment is it a misunderstanding is there something that you know could turn unclear well you know if markets are responding also to the circumstances i think as policy makers to some extent have been surprised because there has been news that really are news and that were very difficult to anticipate markets are doing the same and we have to and you know this very well the markets are turning around very big positions they're adjusting their portfolios we are talking about the circumstance where for very very long periods of time we had a tailwind in the bond markets you know we had very low and falling real rates of interest falling nominal interest rates so trading bonds was relatively simple we had very big expectations for earnings into the future a lot of interest in different sectors of the economy quick little heads up uh tkq showing signs of a potential support it just hit lows of 2416 for those that care to pay attention to it just a little update for you and central banks need to to do their work not not as an objective in itself but as all these central bankers have been saying to to fix a problem which is inflation and then continue which have a much better world moving forward so there are certain circumstances in markets where frictions are bigger uh trading conditions are not always the same i mean you you get circumstances of crowded trades because at some point the same type of investors are trying to do the same operation and liquidity is not necessarily there something that for me has been very positive is that central banks the leading central banks have been able to implement their money policy adjustments without really generating such big so any any sort of of market disruptions markets have been performing well liquid is there market making is is going forward yes there have been some disruptions i'm not talking about the cyber world that's another another fish or how do you say it another kettle of fish but you know i think i heard that the that the markets have been working really well and and and yes behind behind the actions crazy and so far i would i would say so good yeah but at what point and i i think would make the last point on markets is how much do central banks need to deal with markets mr carson's to see you know to to i guess impact the real economy how much do we deal with them yeah i mean how much do you need to to focus on markets to make sure that also the real economy is quite strong well i mean we spend a lot of time uh analyzing markets uh and all of that is fed into uh what impact those changes have on the inflation outlook i mean that's why we do it with the second vote with the second objective is average team rightly says of course about market stability um because after all we've also got financial stability obligations and responsibilities i mean i think if i get back to the panel this morning though briefly i think the point was rightly made that it's turning points that are the hardest uh often to read and it's not just for us it's for markets as well and i think certainly when i look at the uk economy at the moment you know it's very clear that the economy is now starting to slow we are at something of a turning point in that respect and i think the fact that you know markets are having to take that on board and that you know the data can be quite choppy at that sort of point in time is reflected in some of the short-run movements and markets now i do think one of you know one of the essential things for central banks is to look through that short run we have to extract the information and then look through it because obviously our objectives are much further forward in that sense uh in terms of in terms of low inflation and returning to target but in terms of taking the information out of markets yeah it's a very important activity for us um paul krugman i think on friday said that the number one risk to the us economy is that the fed could over do it because inflation could come down as quickly as it went up is that really possible well we'd certainly welcome inflation coming down more quickly than expected and we would take that into account in our in our policy so i look i as i mentioned earlier we um we're very strongly committed to using our tools to get inflation to come down the way to do that is to slow down growth ideally keep it positive and as i mentioned supply demand get back into balance so that that's what we're trying to accomplish is there a risk certainly there's a risk but i i i wouldn't agree that's the biggest risk to the economy i think the you know the bigger mistake to make let's put it that way would be to fail to restore price stability and it's uh two on what augustine was speaking to earlier a low inflation environment or regime is what we've had and that is one in which inflation is low and um no one pays any attention to to inflation and that's called rational inattention because it doesn't matter when when there's a big inflation spike uh if it's going to go away we would ignore it and and but and and sort of play through it because it'll go away and it won't affect people's understanding but to the extent there are series of shocks um it does become rational for people to pay more and more attention and i think the clock is kind of running on you know how long will you know will the will you remain in a low inflation regime where most of the changes in inflation are actually idiosyncratic as opposed to broadly across the macro economy so the risk is that you because of multiple multiplicity of shocks you transition you start to transition into a higher inflation regime and our job is literally to prevent that from happening and we will prevent that from happening we will not allow a transition from a low inflation environment into a high inflation environment is there a point where actually so inflation expectations get de-anchored is that that's another way of saying it or thinking about it it's the same thing same idea and the thing is you never really know there's no way to know in real time we all study inflation expectations very carefully and if you look across the broad scope of short medium and long-term expectation you'd still say that we have credibility that they're well anchored but there's a clock running here where we have high inflation running now for more than a year and you know the no one should assume it would it would be bad risk management to just assume that those longer-term inflation expectations will remain accurate indefinitely in the face of persistent high inflation so we're not doing that as a risk management matter we are you know we're working very hard on the part that we can affect which is the demand side we can't affect the supply side really but we can affect the large parts of the u.s economy where there's surplus demand and that's really our focus is there a data point that you watch for to actually see whether there is a day occurring right or you know where do you see it first basically if it's spiraling not to see it at all we can't once we start seeing that you know the the cost of dealing with with uh uh with higher inflation goes up so much to the extent you find yourself in in a higher inflation regime that you just you just can't allow it to happen so you if you're starting to see serious de-anchoring of and we're not of longer-term inflation expectations then then you're behind and i i think right now we're doing what we need to do which is to just to move expeditiously and and into restrictive territory fairly quickly i think that's what we need to be doing so that we don't we don't find ourselves in that situation president lagarde what's the situation like in europe we had a pretty ugly cpi number from spain this morning yeah numbers from germany that are below what economists expected so i think it's it's uh it's a question of waiting until the 1st of july when we have a consolidated number for for the whole of the euro area and we'll see because we are we are data dependent but you know just like uh like jay our our mission our mandate our job is to provide price stability which we have defined as two percent so we currently have inflation at uh you know forecast uh 6.8 for this year moving that down to 3.5 and 2.1 in 24. all of that is above target throughout the whole uh projection period and we need to do what we have to do which is to bring it back to two percent and and we shall do so now of course we are not exactly in the same situation as as augustine was saying we need to look at our markets we need to look at forces we need to look at how the uncertainty that we have on the horizon is going to clear and i think that in that respect what happens on the energy front what happens on the war front unfortunately what happens in relation to wage negotiations uh and and our inflation expectations continue to uh re to to stay anchored as they have re-anchored uh other the some of the elements that we will be looking at very carefully in the job that we have to do to bring inflation back to two percent over the medium term that's the same determination yeah governor bailey well i agree i mean i like christine i am concerned about how the the war front and the uh energy supply front is going to evolve i think that is the major risk i think it by the way if i say i mean we had an inflation number out last week what i thought was that on the surface it was pretty much in line with what we expected underneath the surface there was a there was a sign that we saw a shift in the makeup of inflation from the the good supply shock to the energy and food shock which i would sort of characterize as the post covered supply chain shock moving more into the sadly into the russia ukraine world and uh obviously we watch that very very very carefully uh as we go through the year as we've said in our last martial policy report you know unfortunately there is going to be a further step up in uk inflation later this year because that that's a product of the way the energy price cap in domestic energy prices are set based on the data that we've observed over the last few months and we have to yeah we have to take that into account but as christine and jay have said you know the key for us is to bring inflation back down to target and that's what we will do hindsight is a beautiful thing i know and i also know the ecb published a paper and saying you know what what you got wrong on inflation but going forward mr carson's how do we need to look at inflation differently so for example in the us and i lost the same to chair powell the stimulus did we miscalculate the impact this would have on on inflation i think it's a very healthy exercise to actually assess why you were off off the mark and uh you know if if all of you actually do the same exercise you will probably realize for most of you that actually energy was vastly underestimated and that you know bottlenecks were also expected to clear much faster than everybody had expected i don't think the ecb is alone on that camp yeah we're the first one uh that's a good question so they just asked when is the next uh let me go ahead and find it so when is the next big economic data report so the cpi reports for those that are unaware are released around the 10th and the 11th of every single month so just make sure that you're aware of that especially for this up-and-coming month uh for the month of july to see if we actually saw peaked inflation if we see that inflation has peaked that should act as a positive catalyst and for those that are unaware i put the vix over here anytime that the vix rises that means that fear is rising when fear rises markets drop so as you can see again uh it's good to understand that correlation that to some extent had kept i would say for some time giving the indication that inflation could not rise that fast we faced many many limitations like that i mean i have to be very transparent last year we tried to crank out some numbers of inflation and we put them out there and you know here is one of the researchers that did the job and he had a hard time cranking up higher numbers as much as he tried and we had it at the end of the day wrong and part of me i'm not living to him you know it was my responsibility too but that was the that was the toolbox we have no now if i find that you know there are many different hidden relationships or very key aspects about inflation expectations expectation formations situation in labor markets that can give you non-linearities you know therefore we have a very nice model for normal circumstances but as it has been said periodically here or in a reiterative fashion uh you know a turning point is what are what is very very difficult so we have entered into dynamics that are are very different so i think where there needs to be a lot of work is and we started doing some of the job recently in the vls is to understand much better what is happening with inflation under the hood why some relative prices eventually become a become more contagious to use at work and start spreading around how why some shocks are more durable than others why there are some prices that that generate more spillovers what determines the frequency of firms revision of the prices which certainly increases with inflation the new technology that we have talked about i mean now we have amazons and we have all the these markets that probably were not there certainly were not there when cpis were calculated a few a few years ago so there is a lot of things that we need to do to to to catch up so i think it's a it's it's a challenge for us i think as we are accumulating all this infor information i'm sure also it will give us and he's given already more leading indicators of what for what inflation is doing and that will be very very helpful to to to calibrate to calibrate the response so yes i mean i think i think inflation will evolve the inflationary pressures we are facing today are very different than the ones we had in the 70s and i'm sure that the the bout of inflation you might see in some decades forward will be also very very different so we need to preserve that nimbleness analytically to approach and also be very mindful that we need the right instruments and another thing that that has been very useful is that the different banks have been with central ones have been able to adapt their instruments to the monetary policy according to the circumstances does everybody on the panel think they understand inflation because you could also have again you know going back to krugman's point that that has been very useful is that the different vines have been central ones have been able to adapt their instruments to the monetary policy according to the circumstances does everybody on the panel think they understand inflation better now than they did four or five months ago because you could also have again you know going back to krugman's point can i say something yeah i mean certainly i believe that we understand it a little bit better not fully there is a click a sort of a big i won't say black box but certainly gray box where i think in the profession of economics we need to do better and that's understanding aggregate supply we are at least i myself consider myself an economist that i was training trained under the dominance of aggregate demand and we know a lot how to i can get demand response to interest rates how they respond to income how monetary policy and fiscal policy has a transmission mechanism to aggregate demand but you know we usually take aggregate supply as given it's very complex it's very very complex and i think we need to understand far better aggregate supply one one confusion that is out there today i think is that the flexibilities or the flexibility or the inelasticity of supply in the short term is there but that doesn't necessarily mean makes it the same as a bottleneck what is the difference how the impact that on inflation so i think the understanding of aggregate supply that also includes labor markets is of the essence so from from the challenges we are taking forward for me that is one that is very important i like the idea of a great box sectoral suppliers we it's very important that we've had a series of supply shocks this is the point i mean i you know the word transient has become discredited but it isn't really in one sense because that was built on a single supply shock idea you know that supply shot can work its way through the duration of that supply shock can often be shorter than the response of the transmission response of marginal policy now we've not been in that we've been in a world where we've had a series of supply shots i mean we look at our shots yes we had an initial demand shot from kovic but then we had you know supply shot with the supply chain recovery problems we've had uh obviously a very serious supply shot coming from energy and the war and we've had a low market shock in the uk because those forces reduced in size and it's as jay was saying it's how you deal with a series of supply shocks large supply shots with no air gap between them which of course feeds through into expectations because it because put them all together they're not transitory in the uh traditional sense of the term one way to say it would be we i think we now understand better how little we understand no you know honestly this was this was unpredicted i i was looking at our um uh at the time of our june meeting one year ago of the 35 uh people who file with this survey from professional forecasters 34 of them had inflation below 4 for last year of course it was way above 4 so really really everyone had the same model which was the phillips curve model and it just was not capable of producing high inflation but what it was missing was something that's completely missing in the data for 40 years which is basically a collapse of the supply side you know the the us economy is famously adaptable you know it does it has the minimum of structural rigidities all that kind of thing and yet here they are so you so what you had was very strong demand but hitting effectively a vertical supply curve so ordinarily when people want to buy cars which they really did because they didn't want to ride on public transportation rates were low they had all these savings the car companies would make more cars and they might raise prices too in this case they couldn't make as many cars so so what you got was straight up the vertical supply curve a big price increase but i also think in principle at least that process could work in reverse so that as demand comes down you you could you know inflation could actually come down more quickly than would be than would you know there are other relationships that people think about when they think about how do you get inflation down which are more typical of a simply overheated economy and and entrenched inflation the sacrifice ratio and those kinds of things but i think this could be i don't know that it will be but it could be different because it's just that process working in reverse potentially do you see that process um you know president working in reverse so actually i know it's different because you know what we're seeing at the moment is more this this swing of substitution that was described earlier uh in the day where you know because of covid everybody suddenly decided to stop using any kind of services particularly if there was social distancing about it and moved to to goods hence the car industry in the us and you know stationary bicycle rather than the fitness club and and and now we are seeing this sort of substitution back to services where people have been deprived of restaurants hotels transportation theaters and all the rest of it there's that that side of it is currently booming and is sustaining the recovery that is otherwise under the various series of shock that uh andrew was alluding to so quick little heads up you guys could see my charts on the left hand side t qqq is showing signs of an uptrend i'm adding a little bit more to my position size i know i have a couple of our learn plan profit traders in the chat uh so just making you guys aware of what i'm deciding to do also a heads up we are experiencing that resistance at around 25 a share so direction is not super clear uh if you wanted to wait a little bit more for clear direction 100 being conservative during uncertain times would be um useful so just an update for you guys for the moment more in the scenario planning world than than in the remodeling of what's going to happen on the uh on gas prices um mr carson's talking about emerging markets a little bit so first you know it's it's um i don't know whether they're coming to their stride because they're used to the volatility but there are huge implications of course of what the dollar is doing yes of course um i mean i think at the end of the day a very strong dollar in price for many of them very tight global financial conditions and so far again as i mentioned the exchange that's actually a really good question we have someone asking i do not understand why the market is rising so tt qqq is up barely anything the overall nasdaq markets pretty much barely in the green one of the things that you must have must understand is that markets rise when things begin to not get worse right as soon as we hear any form of news or any speculation about anything the markets drop instantly the stock market is like is unlike many other markets where it takes time such as real estate to get factored in right it's not until a couple months later that we see that delayed reaction the stock market is different if things are not getting worse then they're getting better and that's what we tend to experience covid is a perfect example of this where things were not necessarily getting better but they just weren't getting worse and then that's when we began to see markets recover so please make sure that you understand sometimes it doesn't make sense to people but it's because things get factored in instantly that markets tend to recover so just wanted to explain that to the best i could see in the compo in the in their basket done in advanced economies so that obviously reflects itself in more social need and where of course many governments according to their capacities they are doing programs to assist people uh so at the end of the day they're they're on it on a tight situation they have to manage things very prudently i think they're as if we compare these with other periods emerging markets are better prepared but i think that the that that the challenges are there i think i think a a big challenge for many emerging markets including i would say china is is how to get growth back at the much healthier pace you know i think the the growth in emerging markets has slowed down not not now but even before the pandemic to some extent the virtues of globalization have sort of run out of steam and therefore the the the relevance of structural reforms are very important we need to look much better into how to get growth going independently of the use from fiscal and monetary policy and to a large extent that also applies to advanced economies thank you um governor bailey do you think inflation in the uk will be longer will be more elevated for longer than other parts of the world well i mean as christina said um we are going to be affected by the shock that christine described in terms of energy prices in europe because essentially it's a common it's a common shock in geographical europe uh use that term carefully um because it's a single particularly for gas it's a single supply system so although we don't actually pause a large amount of uh gas from russia it doesn't in a sense the price has fallen outside that uh that particular so in that sense really similar i think where i would as things stand expect testing twenty five dollars a share for tpkq rate is because we do have as i mentioned earlier this uh price capping system and domestic uh energy prices uh at the moment it's a six month uh cap but there is a proposal to take it down to three months but other things equal you would imagine that that would put a bit more persistence and we will of course have to explain that because if we can observe a you know downward path of underlying inflation we have to be very careful to explain that if that's how it's uh how it emerges but does brexit actually make bringing down inflation harder well brexit i should say it it's it's very hard at the moment here we go to separate that the immediate effects of brexit and the immediate effects of covert so when i look at trade and when i look at labour market particularly um you can see effects taking place but you can see that covered and brexit are having some reflection the reason i say that is because vague england for some time now has had a had you know sort of a path of a brexit effect do you guys see this correlation when the vix begins to drop tqqq begins to rise again we talked about this yesterday and why it's so important to at least understand it you don't have to ever trade off of it again i 100 agree that there's not one indicator that is 100 accurate but when you're asking the question how is it that i understand the correlation when markets tend to peak i use the vix considered as the fear index as a good reference or if you want to call it indicator to have a better understanding of when fear is high or when fear is low again this can give me a better understanding of you know when i can really begin to step on the gas so for those that began to ask why did i start buying t qq is because i began to see the vix trade sideways showing signs of a resistance and no longer beginning to rise when the vix begins to drop normally the markets begin to recover so please understand that correlation i just wanted to explain it to you good and bad to movements in the extreme trade it's one of the many things that goes into the into the analysis process in terms of how we think about the evolution of inflation i was going to ask you about the dollar and whether that helps with price stability dollar strength like andrew we don't we don't uh we don't have responsibility for the level of the dollar that's the elected government's job that's the treasury department's job and so it's just another financial condition to us and uh and since our economy you know the external sector in our economy is so much smaller than it is for the others here uh it's it's not that important but uh dollar has been strong which would tend to be disinflationary but only at the very at the very margin i mean i think i think what we what we're seeing these days is is our adjustments in exchange rates but i think the way of thinking of those adjustments in most economies including in emerging market economies are part of the adjustment process i mean they are endorsed in the indulgence variables for example the dollar is stronger because the u.s economy is stronger because interest rates are higher and also how the shocks that are around are affecting the different economies so the fact that you have a very strong commodity pricing in europe uh with gas and so on and so forth is very logical to think that the real exchange rate will depreciate and that's part of the adjustment you know so i think i think we're in a world where in most of the cases exchange rates are part of the adjustment in some cases in particular in emerging markets it has it has more of an impact in the monetary policy management is because the pass-through formula of the exchange rate into prices is much higher than in advanced economies so in advanced economies you know it doesn't in unless there are huge swings the impact on the on the trajectory of inflation is is not that relevant um was your question to talk about a gray box what's your grey box is there something that you wish you knew that that would help in setting my policy only one thing yeah no i'd go back to the same thing really which is what what did we what did we get wrong and that really was looking at these supply side issues and believing that they would be resolved relatively quickly and then by that i mean there was going to be there were going to be vaccinations everyone would get vaccinated so the millions of people who dropped out of the labor force would come right back in so wages wouldn't be under such pressure that didn't happen for a range of reasons it didn't happen showing signs of a supporter showing signs of resistance comes the new shock in the form of the war um but so we it but it wasn't it was wasn't something wrong with our models because it wasn't in the models at all it was it was a question of how to assess the persistence of these supply-side shocks and i i do think that they'll be to eitherton's point they'll be able and there is a lot of work going on to get smarter about the supply side in the nature of it though it was a deep in the tail kind of a risk and those are those are very hard to predict and assess when they come because monetary policy is not an exact science how often do you actually speak on the phone to exchange ideas do you like you call each other and say like well i've done it this way i can help out i mean because part of my job part of my job is to be able to attract them to vassal sometimes every two months to have very very deep and open exchange of views and you're sure we speak quite often quite a lot but you're not going to tell me president the ecb decided to apply flexibility to reinvestments from friday july the 1st what will be the guideposts we decided look i think if you allow i'd like to just come back to why that is because i think that um here we go uh the vix is dropping once again and t kiki q is rising so we're retesting that same resistance at 25 30 a share just a reminder let's say 19 for the moment member states that each have their respective fiscal policy that each have their respective financial markets and as a result of that our unique monetary policy has to be transmitted throughout this imperfect market of house which has no fiscal union no monetary union no capital market union and as a result of that we just have to make sure that our monetary policy stance is actually transmitted throughout the entire euro area and the two of them i think i use that word i don't know if it exists in english but they are consubstantial for our stance to be effective it has to be transmitted throughout okay so to do that if we see that there are unwarranted disruption to that transmission and if our stance is impaired as a result we need to take action and that is the reason we decided that we would use as of you're right friday that's what i said yesterday we would use we would use the flexibility in the reinvestment of our pandemic emergency purchase program redemptions in order to address the potential risk of fragmentation second we also decided and and it's work in progress so i'm not going to comment upon it i know that some some would like to have details and understand it for everybody else and particularly before the governing council what the details of that instrument will be but we decided to reinforce our capacity to properly transmit our monetary policy by dividing devising a new tool that will be considered by the governing council of the cv on july the 21st so don't waste your time asking me for details criterias conditions safeguards all i said is that it has to be effective it has to be proportional it has to include the right level of safeguards and that's all i will say at this point yeah how do you direct and it will be effective and it will be proportional and it will have safeguards and it will be there believe me so how do you direct staff if you're going to try my life one more time how do you direct stuff when they designed this new tool i said good luck the lady is not returning is the the famous way um how do you look at china mr karstens how should we look at china at the moment well i mean it is of the essence that the things start improving more quickly in china i mean certainly we need the growth that has come from china they play a very important role in in in the supply chains i mean many of the tensions were seen around the world they could be mitigated by having higher growth rates around the world i mean part of the the the i mean the way we have started all right guys um i'm gonna keep the live stream going i'm just going to take a little bit of a break but one of the things i just wanted to recap it for everyone that's just tuning on in especially if you're absolutely absolutely new to the market so pretty much this meeting that we had today is some of like the world leaders for different parts of the country right we have jerome powell representing the federal reserve which of course oversees the united states and with that being said i mean nothing new has been said uh jerome powell still talks about the tools and i mean only being able to use specific tools in effort to moderate inflation they all agree that taking inflation head-on was the best approach that they could have done there's a lot of people in the live chat that uh agree or disagree with specific things that these individuals um are saying and it's because we can always look back and be like i mean i i agree with most of you like we should have not printed as much money um you know obviously that that was going to be a consequence of of you know we saw this little like uh statistic where in the past two years we have printed what is now 80 of the money circulating in the united states and i think that's pretty insane right so yes there is a lot of money printed obviously looking back there's a lot of different steps that could have been taken in effort to kind of just like have cushioned the type of inflation that we would have experienced but like they said is i mean they can't predict the future right all they're trying to do is now learn from the mistake that they have made an effort in trying to tackle on inflation head-on that is why they're taking a super aggressive approach uh when raising interest rates it's an agreed to disagree i mean all they're literally doing is trying to the best of their ability to moderate inflation and they're doing this head on it would be more concerning seeing how high inflation is and still not taking an aggressive approach and effort to alleviate kind of some of that weight they also did say i mean there are certain factors such as oil and food right for logistic reasons um that is something out of their control they can't do anything about supply all they can do is try to use their tool as in raising interest rates to moderate demand by raising interest rate interest rates you make it more or less desirable to want to spend money therefore it encourages people to save money by spending less money it allows supply to catch up with demand so demand is the only thing that they can begin to slow down an effort for supply to catch u