 Hello and welcome back to the final panel of our conference. Inflation is lingering. The European Central Bank, the Federal Reserve and the Bank of England have all raised rates. Even the Bank of Japan is considering unraveling its decades-long ultra-loose monetary policy. The question now is how long will policies have to stay in restrictive territory to bring inflation back to institutions to present goals? And is it possible to do so without creating a recession? Ladies and gentlemen, the members of our next panel will bear a great deal of responsibility for bringing inflation back down to two, and not only that, but keeping it there. Sarah Eisen, the closing bell anchor at CNBC, will be moderating this session. Sarah, over to you. Thank you so much, Claire. And let me just say, as a business and financial journalist who started out in foreign exchange, this is pretty much as good as it gets. So thank you for having me talking to the big four today. And what I love, I'm excited for this conversation because it's always fun when everybody's in different places and going at different speeds and maybe disagreeing if you dare to do so today. So thank you all. President Lagarde, I'll start with you as the host of this meeting on the view from Europe. I'm curious where all of you are in terms of this policy path. We've certainly seen a fight against inflation. You've been very clear that there's more work to do. How much more? Thank you so much, Sarah. It's very nice having you in this closing moment. And I'll take this opportunity to thank all the contributors, those who have prepared papers, those who have worked with the presenters and all the panel members. It's been really, really a rich conference and I want to thank you. So as far as the European Central Bank is concerned and the euro system at large, we have covered a lot of ground. We have increased our interest rates by no less than 400 basis points in a very short order, less than a year. And we still have ground to cover. And I think that, as I said earlier on, we are data dependent. We will decide on a meeting by meeting basis, but we know that we have ground to cover. And if our baseline stands, then we also know that we will very likely hike again in July. What about September? That I will not tell you for a very simple reason, that I just mentioned, we are data dependent. We'll decide meeting by meeting and we'll tell you for the September meeting, we will have received a lot more data information, survey results, and it's going to be another projection meeting prepared by the staff of the ECB. So we will have a lot in our hands to make a decision then. Governor Bailey, you surprised the market recently, raising interest rates by 50. You did a double. Why did you feel the need to do that? Well, it really picks up on the theme that Christine has just developed. First of all, I mean, the UK economy has turned out to be much more resilient. And that's a good thing. I mean, there's many good aspects to that. But what goes with that resilience is signs of a very tight labour market, which is showing through in pay, pay awards. But also showing free, I mean, we've got an unemployment rate of 3.8%, which is historically right at the low end. So that resilience is coming through that way. But when we looked at the, again, to Christine's point, when we looked at the data, because we too are being driven by evidence at the moment, the cumulative data, both particularly on the labour market and on the inflation release we had, which to us showed clear signs of persistence, caused us to conclude that we had to make really quite a strong move at that point. It was justified. My own view on that was, if we were really of the view that we were going to do 25, and then we were really sort of baked in for another 25 based on the evidence we'd seen, it was better to do the 50. And then we will, as Christine said, we will be evidence-driven. So we will wait for the next set of evidence for our next meeting, which to Christine's point again will also be one where we will have a full forecast. Have you received a lot of flack for the move? Well, I think at the moment I can understand why there are critics of us and central banks. We have a job to do. I'm very clear that our job, all of us are very clear, I think our job is to return inflation to target and we will do what is necessary. I understand the concerns that go with that, but I'm afraid I always have to say that it is a worse outcome if we don't get inflation back to target. Something I know, you've all been saying, Chair Powell, you've said it many times and yet you paused, but you're not calling it a pause and you're not calling it a skip. So what are we calling it? Well, first of all, Sarah, thank you and Christine, thanks for hosting us here in Centra. So what we're calling it is maintaining the level of the federal funds rate at its current level for this meeting, thank you, thank you. And we did that, if you think about it, we've raised the federal funds rate by 500 basis points since a little more than a year ago and we think, so we've come a long way. We also think that there's more tightening power coming through really, policy hasn't been restrictive for very long. We started at negative real interest rates and we've now moved up to where we actually are in restrictive territory, but we haven't been there very long. So we believe there's more restriction coming and what's really driving it to Andrew's point and Christine's as well is very strong labour market. We've got a labour market where jobs are being created, there are strong wage gains and that's driving real incomes and driving spending, which is driving more demand and continuing to drive labour market. So the labour market is really pulling the economy and my colleagues and I, as you will know, wrote down on our SEP two more additional rate hikes. The median was quite a strong majority, actually one of two or more rate hikes and the reason for that was, if you look at the data over the last quarter, what you see is stronger than expected growth. A tighter than expected labour market and higher than expected inflation. So that tells us that although policy is restrictive, it may not be restrictive enough and it has not been restrictive for long enough. So I don't get why you didn't raise rates at the last meeting, especially, I think it was a surprise that it was a unanimous decision to hold rates steady when you said a majority think that they still need to go farther on raising rates. It's really just as you get closer and closer to the goal. What we're aiming for is a stance of policy that's sufficiently restrictive to bring inflation down to 2% over time. As you get closer to that, you get closer to the place where the risks become more in balance. So we did 475 basis point hikes in a row starting in June of last year. In December, we moved down to 50. Then we did three consecutive 25 basis point hikes. So this is really just a continuation. We're going to move the decisions a little bit, make them a little bit, with a little bit more time in between them in an effort to get more information from the data to see how much restraint is really coming from these through the pipeline from rate hikes that we only made now, in many cases, six, eight, nine months ago. So that's why we did it. So maybe in every other meeting hike? We've not decided that. So the only thing we decided was not to raise rates at the June meeting. We have not made a decision to go to that. It may work out that way. It may not work out that way, but I wouldn't take moving a consecutive meetings off the table at all. I'm trying. Governor Leda. First of all, it's great to talk to you. We haven't heard much from you outside of your policy meetings in Japan. I think the world wants to know why you're the global outlier here. You have decided to maintain your easier monetary policy in the face of rising inflation. Why? So a simple answer would be, although the headlining rate of inflation is above 3%, which is well above the 2% inflation target, we think underlying inflation is still a bit lower than 2%. That's why we are keeping policy unchanged at the moment. Even though we've seen measures, including core, right, higher than the 2% level? Yeah, the union core is also above 2%. But let's say, let's look at the rate of increasing wages, which is an important determinant of underlying inflation. It has risen, but is now running at around 2%. Now, if you want a 2% inflation rate, wage inflation that's consistent with that would be slightly or well above 2% if you assume productively growth rate is positive. So there's still some distance to go, we think. And as a result of your policy being different than all these policies of your colleagues, the yen has gotten very weak and continues to weaken by the minute. Is it too weak? Well, the yen is being influenced by many factors other than our monetary policy, including the policies of these three banks. So we'll see. We monitor the situation very carefully. Monitoring the situation for intervention purposes? No, no. It's the jurisdiction of the Ministry of Finance. Decisions on intervention. President Lagarde, how much would you like to see inflation moderate from these levels? Cos we've already seen a nice moderation for you to feel comfortable taking a pause or potentially going the other way. Well, this is not what we're considering at the moment. But if I look back at what we've covered, inflation was, I think the highest reading we had was 10.3. We are now at 6.1 headline. Core has moved a bit down, but we are really looking at both headlines, which is the measurement that we have agreed in our strategy and that is visible for people, for the consumers of Europe. But we're also looking at underlying inflation. And on that front, we are not seeing enough tangible evidence of the fact that underlying inflation, particularly the domestic prices, are stabilizing and moving down. So we're looking at as many measurements as we can because we want to be in sufficiently restrictive territory for long enough so that we are confident that we reach our 2% medium-term target. Why is it so sticky, Governor Bailey, and why is your inflation rate higher than that of Europe's? Well, let me distinguish headline and core for a moment. So with headline inflation, I do expect it to come down markedly this year as we've been expecting some time. And a lot of that is to do with the fact that the unwind of energy measures in the UK is on a somewhat longer track so that we will see some quite discreet jumps down in headline inflation in the UK throughout the rest of this year. And indeed, actually, energy prices are now somewhat weaker anyway than we thought they would be quite recently. So it's core that's the issue, just as Christine has said. Core is much stickier. I think I'll come back to the labour market again. We have a very, very robust labour market and strong labour market in the UK. One of the striking things about the UK is that the size of the labour force is smaller than it was at the outbreak of COVID. So we have had a shrinkage of the labour force. We're seeing some reversal of that now, but we're still not back to where we were pre-COVID. So that is causing the position of the labour market to be very tight. And I see this when I go around the country talking to firms because what they say to me very frequently is that their plan is to retain labour as much as they can, even in the event of a downturn, because they've been concerned and it's been difficult to recruit labour. So that's certainly taking place. So I would say there's a backdrop of a very tight labour market going on. Is it Brexit related also? I don't think Brexit is a part of that labour market story. I think a lot more of it is actually to do with, frankly, the response to COVID. I mean, we've seen people, the UK is a little unusual in this respect. We've seen, we saw people come out of the labour force during the COVID period. Other countries have tended to see that position reverse more quickly and more strongly than we've seen in the UK. Governor Weta, when it comes to the inflation path for you, I mean, I know you'd like to see it continue to rise from here, right? What would it take for you to really strongly consider abandoning the yield curve control and negative rates? So we have a forecast projection of inflation path that looks like it's going to go down for a while toward the end of this year on declines in import prices and it's built over to domestic prices. And from there on, we are forecasting some increase in the rate of inflation into 24. But we are less confident about the second part. If we get, if we become reasonably sure that the second part is going to happen, that could be a good reason for a policy change. If you see a steady increase. If we are reasonably sure that the second part is going, second part of the forecast is going to. But didn't you learn from these three that inflation turned out to be not transitory? Excuse me? I mean, it wasn't one of the lessons from the last year that inflation wasn't transitory and that there are some elements and it was not. That there are some elements of it that are sticking and proving difficult to fight. Right, so the second part is the sticky part. But it's still, as I said, we think less than 2%. We hope to make sure that it's going to go up to 2%. Chair Powell, we've seen some progress in the US. Certainly if you look at the headline CPI from 9%, down to 4%, I know you're focused on core. But what would make you feel better about it that you could remain on hold? So the progress on headline inflation coming down is certainly welcome and ought to help keep inflation expectations anchored. But I think it actually helps to break, to think about core inflation broken into three pieces. The first of which is goods inflation. And we've seen goods inflation coming down for six months now. And that's because supply chains are improving. The shortages are more or less gone. And also because consumption is moving back to services and away from goods. So that part of the story makes sense. Housing services is the next piece and between that and goods you have a little bit less than half of the total index. And you see now the new rents that are coming in are at lower increases or no increase. And so there's significant disinflation in the pipeline there. But it's going to take 12 months or 18 months to get there. The place where we haven't really seen much progress is in non-housing services, which is a little more than half of our core PCE inflation index. And that's hot hotel services, travel services, food service, financial services, health care, those things. It's generally very labor-intensive. Some of it's quite sickle-dys-tensive. Some of it's not. The point is we really, that's where we're not seeing a lot of progress. And the reason is that one explanation for it is that labor costs are really the biggest factor by far in most parts of that sector. And so what we need to see, we've seen a lot of signs of softening in the labor market but it's just kind of beginning. We need to see a better alignment of supply and demand in the labor market and see some more softening in labor market conditions so that inflationary pressures in that sector can also begin to subside. Are you surprised that hasn't happened yet after 500 basis points of tightening already in a little over a year? Yes, I think widely it's been surprising that inflation has been this persistent but I think the bottom line is that policy hasn't been restrictive enough for long enough to start to see those effects. And the service sector is not especially interest rate sensitive, by the way, as opposed to, for example, the good sector. So we wouldn't expect it to be the first to be affected but we would ultimately expect, as demand softens and as the labor market conditions go more into balance between supply and demand, we would expect to see inflationary pressures subside in that sector as well. Do you guys coordinate? Do you talk amongst yourselves? Yeah, of course we do. I mean, do you call before policy meetings? Can I just follow up on what Jay said because I think he's completely right. And I think that this is what I call the catch 22 issue where we have an expected catch down where manufacturing eventually will align or services will align on manufacturing and that would be the logical consequence of the lack time that it takes for services to align with manufacturing and to see prices go down in that sector. The catch up is that of labor because it is, as Jay said, labor intensive. It's generally relatively low productivity and low skilled jobs in those sectors. And also those jobs that are going to seek the catching up with pre-COVID times. And how that catch down, catch up will be resolved is going to be critically important for where inflation is heading because if we see inflation going down in that service sector and movement of wages while increasing at a moderate pace then we would be in a relatively good place. But that is totally a question mark for the moment. Yeah, it sort of raises the question, Chair Powell, about whether we need to see a much higher unemployment rate in the US and you're all dealing with a tight labor market to finally really break inflation. So, you know, the way we think about that is that there seems to be a path still for labor market conditions to soften and for demand and supply to get back into balance without the kind of large job losses that have happened in many prior cycles. And the reason for that is the level of job openings that still exist in the labor market. So it's still set 1.7 job openings for every person who counts as unemployed. That has been coming down. It's come, actually the number of job openings has come down now by almost 2 million. And what you're seeing is you're seeing wage pressures, they're still high, but they're definitely coming down. You're seeing surveys of workers and businesses suggest that the labor market is not as tight as it was a year or two ago. So you're seeing a job creation is beginning to come down. There are a number of indicia that would suggest that we're getting the softening that we need. We're getting it slower than we'd expected, but nonetheless it's happening. So it's still a possibility. But it's so uncertain right now. In my view, the least unlikely case is that we do find our way to better balance without a really severe downturn. I think there's a significant probability that there will be a downturn as well, though. But it's not to me the most likely case. That's the hard landing scenario. Or just this, I wasn't even thinking of hard landing. I was thinking of even a recession. To me it's not the most likely case, but it's certainly possible. And, of course, many forecasters do predict that. Is Europe in recession, President Levin? I mean, we've seen two negative quarters of GDP. I don't know how you define it. I think the first quarter of 23 was actually completely flat. It wasn't negative. So technically I think you could argue that we did not see a recession, but it's stagnant, say the least. And the expectations for Q2, particularly in the industrial sector, if I look at PMI numbers, are not giving us great hope that there will be a strong recovery. We see a second half of 23 up from the first half, certainly but moderate. We have a 0.9 forecast for the whole year. Do you agree with Sherpal? Do you think you can get away with this tightening cycle without dragging Europe into recession? Our baseline does not include a recession, but it's part of the risk out there. Are you willing to tolerate a recession? The interesting thing for us is that if you go back to last autumn, last November, when we did a forecast, we were predicting quite a long, but quite shallow recession. And the economy, as I said earlier, has turned out to be much more resilient so far. Now, I think you can point to a number of things that underlie that. One of the things I would point to is the fact that we've had a very sharp fall in energy prices in Europe. And that obviously has helped with the whole question of the terms of trade shock that we've been having. It's done quite a bit to reverse that terms of trade shock and that feeds through international income. So I'm not surprised that we've had this reversal in one sense. What was surprising, but actually very helpful, was that, of course, we did have this big fall in energy prices and a much better winter, frankly, than we thought we would have. So we're going through this year now in a more resilient position than I expected. So we're not currently forecasting it, but obviously we have to watch it very carefully. How's the Japanese economy faring? I mean, it's very exciting if you look at the Japanese stock market at a 30-decade high. What's happening fundamentally? It's doing fairly well. I mean, apart from the contribution from some inventory investment, domestic economy is expanding at a pace slightly above potential, I think, and it's driven by pent-up demand. We relaxed pandemic-related restrictions in May, and this is stimulating consumption and investment. There's also green, DX-related business-fixed investment taking place. So investment is fairly strong at the moment. We think the economy is going to expand slightly above potential for some time. But there's, of course, a lot of uncertainties going forward, including what may happen in Europe and the United States. I asked if you guys coordinated or talked about monetary policy before. I mean, does that happen? Should it be more coordinated? Because you're all doing different things right now. Well, I mean, if I start, I mean, obviously what we don't do is say, what should we do, what should you do? Because we're all setting monetary policy for our areas, and that's the law in all of our areas, actually, so we don't do that. But we do talk a lot, and I think it's important. I mean, it's important at all times, but it's particularly important in recent times at the moment because we're facing such big global shocks. We've got common shocks. They differ a little bit in terms of their impact and their effect, but there's some huge global events going on that are affecting all of us. So I think we do talk quite a lot, and we see each other quite a bit, because it's important that we do that. And we share wisdom on how we're interpreting the things that are going on around us. I guess we are in a flexible exchange rate forward, so we do policies independently. But of course, we exchange information which is very, very valuable. Do you think that, Governor Weta, do you think that they are overtightening? No. No, you don't. You approve of the policy. You've had a very tight labour market for a long time in Japan, even before COVID. Yes. Demographics. It's working in a way to tighten the labour market for quite a long while. And it's going to continue this way for a while. I mean, the economic conversation, it gets into an interesting question, Chair Powell, where now we're wondering, you know, easier to fight inflation last year when the economy was doing better. But now that we're seeing signs of softness and weakness in manufacturing and you mentioned the labour market starting to cool off about overdoing it and the risk of overdoing it, do you wonder about that or you're still just focused on inflation? Let me say, the US economy has actually been quite resilient. And the data that we're still seeing, including since the last meeting, still is consistent with an economy that's resilient and growing, albeit at a modest pace. As I mentioned earlier, though, yes, there was no question we... The first question was how fast should we go and we went pretty fast. And we got to a level that we believe is restrictive. We're in restrictive territory. If you take the federal funds rate and you subtract some forward-looking measure of expected inflation, you'll get a significantly positive real rate, meaning we're probably in restrictive territory. And I think we have steadily slowed the pace of our moves and it's appropriate to do so for one reason because the more information we get, the better decisions we'll make. The risks of doing too much versus doing too little become more in balance. I wouldn't say they're in balance yet, but they're becoming closer to balance. I still believe there and the committee clearly believes that there's more work to do, that there are more rate hikes that are likely to be appropriate. So you think the risk is still of doing too little and not getting control of inflation? Yes, and of course the... But inflation expectations are... I don't have to tell you, very well anchored. No, but the thing with the risks is that there may be social costs associated with restoring price stability. The social costs of failing to restore price stability will be higher in almost all likely cases. We've seen what that looks like and it's just something that we have to do. One of the principal things that society counts on us to accomplish and I think we all feel committed to accomplishing it. It is of course a good thing that inflation expectations have remained anchored all this time, but our understanding of inflation expectations is not a precise one and the longer inflation remains high, the more risk there is that inflation will become entrenched in the economy. So the passage of time is not our friend here. What about a higher inflation target? I know none of you want to talk about that, but on Wall Street there's this idea that a lot of things are changing in our economy structurally, the on-shoring of supply chains and chip plants and all of that is going to be expensive and could permanently create higher inflation rates. Couldn't it, President Lagarde? Well, you know, at this point in time, and given the fight that will lead against inflation, the yacht sticks that there is, the strategy that we've agreed, the expectations that we have and the inflation targeting as it has been said, there is no way that any of us, I think, would consider changing the gatepost halfway or more than halfway through that journey. I think it's wonderful to have a forum like Cintra which brings together academics and other policy makers to actually consider those ideas and to explore them and to weigh the cost and benefit and all the rest of it. But at this point in time, I think we have to be as persistent as inflation is persistent and we have to be resolute and decided and determined in reaching the target that we have set and not debate the target as we are running that race. But it does raise the question, Governor Bailey, about how far inflation will come down to. It does, but let me reinforce what Christine said. What is the inflation target? It is the definition and practice of price stability. In our legislation, it is what price stability is taken to be, that is the 2% target. I don't think anything has changed in terms of what we mean by price stability. I think that's a very important point to start with. It's the anchor that we have to always maintain. Now, in terms of bringing it down, yes, we have faced and are facing the biggest challenge for a very long time, but we have to meet that challenge. I don't think it is the right thing to do, to say, well, this is all a bit difficult, let's change the target. I really don't think that is the right thing to do. That would be a very bad thing to do. I think, although I very much agree, Christine was saying that there are things we understand about inflation expectations and things we don't understand about inflation expectations, I think taking risks of that nature with inflation expectations, but also fundamentally changing what we mean by price stability when there's no good reason to do that. I think we'll just be the wrong thing. How do you read Governor Wade out the inflation expectations? Because they've crept up in Japan as well. Yes. We've been for a long time trapped in a zero inflation, zero inflation expectations equilibrium. So we've been trying very hard to move this to a 2% inflation, 2% expectations equilibrium. To do so, we had to de-anchor expectations from zero, raise inflation expectations, and in the future we'll have to re-anchor them at 2%. This is a formidable test, and now we are seeing signs that inflation expectations are rising. But as I said, not to the extent that we are fully in the 2% inflation expectations. It also raises the question, you mentioned the labor market and some of the post COVID changes about just how COVID has distorted the data and has made travel, for instance, so strong for so long. And I wonder, Chair Powell, how you look at the COVID impact on the economy and how it's changed the way you make forecasts and you think about what's happening right now. Well, I think there are changes and we don't know how persistent they will be certainly work from home. And you can see the effect on commercial real estate, particularly office real estate and the surrounding retail that's suffering in many major cities. We don't know how long that will last. It feels like some part of that will be persistent and will last. You mentioned the data as well. We've, I guess response rates to a lot of the data that we collect and the other organizations collective, the response rates have gone down and you're seeing a lot of volatility in some of these data series. I would say more so than we've seen historically. So the data are a little bit, even a little bit foggier than they usually are. But we'll be, you know, in terms of what the effects of COVID, it's going to have long term effects on the economy. There may be loss of productivity. There's certainly been for a generation of kids, some loss of education and training. I think it's hard to say how persistent all this will be. Are you, what is your level of concern of commercial real estate since you mentioned it in the US? It's something that we, of course, are watching carefully. The way it lays out is the large banks don't have large concentrations of commercial real estate. So that's a good place to start. A good part, a surprisingly large part of exposure to commercial real estate is in the banks that are under 100 billion. But there the worry is more banks that have a high concentration and they're relatively few. So it's something that we're carefully monitoring. We're in, bank supervision has a playbook for this. So supervisors are talking to banks about their concentration of real estate and what can they do and how do they manage themselves out of this? It's just, it's something that we're well aware of. It's not a surprise and we're focusing on it. Is it one of the reasons you were cautious in the last meeting? Commercial real estate, I wouldn't say so. No, I just, you know, generally speaking, you know, it was at the last meeting, it was about, you know, what's in the pipeline? How far we've come, what's in the pipeline? I will also say that though, that the bank stress that would part of it, part of the decision in my thinking anyway was the bank stress that we experienced earlier this year, there's a fair amount of research showing that when something like that happens, bank credit availability and credit can move down a little bit with a bit of a lag. So we're watching carefully to see whether that does appear. Of course, tightening in financial conditions is what we're doing intentionally. So we have seen bank credit conditions tighten. The question is, and that's what we're trying to achieve. The question is, is there another channel of that, or a greater amount of that coming from what happened in March? We don't really see any evidence of that, but I think that's in the back of, certainly in the back of my mind to see whether we do see that. Yeah, it gets into the question about lags. How long are lags, Governor Bailey? And do you expect to see more? It's a very interesting question in terms of the transmission of our monetary policy decisions. So if I can just illustrate it with the UK case, and obviously it's not the only part of the transmission mechanism, let me be clear, but it's an important part to illustrate it with the UK mortgage market. So we've seen a big structural change in the UK mortgage market since the last tightening cycle of monetary policy, which, of course, accepting passage of time was about 20 years ago, actually. And that change has been a change from a variable rate mortgage market to a fixed rate mortgage market. Now, I must say, obviously with Jay here, it's not a US-style fixed rate mortgage market. It's much shorter at term. So the average term is often around five years. But we know, and we think, around about 85% of the stock of UK mortgages are now in that part of the market. So we know that the transmission of monetary policy is going to be slower as a result, because obviously it depends upon the timing and the sequence of those fixed terms coming to an end often. So we have to judge that. I mean, it's another factor and another element of uncertainty that we have to judge when we're taking our decisions, which is how much of the tightening that we've already done has come through and how much is yet to come through. And we know that referring back along quite a way into the past isn't going to help us in that respect. So we have to sort of formulate those views afresh. And so it is part of our decision-making calculus is how much more has to come through, when will it come through, and also how powerfully will it come through. And all those things, things we have to take into consideration. And as I said, history isn't going to be a great guide for that, given the change in the market. So a year? What's a lag? Well, what you see, and of course you can compute, is the sort of profile of mortgages coming up for renewal, renewed terms. And we can see that over the next year or so, there's quite a lot of fixed-rate mortgages are coming up for renewal. So, we can factor that in. There is another element of sober uncertainty, so just how that will work its way through. President Lagarde, how do you think about the lags? I think of the lag in three steps, if you will. The first one is transmission in terms of tightening of the financing terms that are made available, and how markets absorb the decisions that we make. And on that front, we have a good and reasonably rapid transmission. We see it in rates, we see it in volume of loans, and on both accounts, there is a good absorption and a rapid transmission of our monetary policy decision. But that's only step one. What we need to see is step two and how it materializes on investment by corporates and for households, it's predominantly mortgages. And for the euro area, there is a lot of heterogeneity because you have markets where mortgages are at fixed-rate, markets where mortgages are at floating rates, some that are readjusted every so many years. So we have to look at all those data very carefully, but it seems that the transmission is likely to be less rapid than it had been in the past because there are many more fixed-rate mortgages now in the euro area than there was, say, 15 years ago. And that's not it. We need to see it then channel to the third step, which is inflation. So we want to see that transmission strength through step one, step two, step three and make sure that this is really having an impact in terms of the fight we have against inflation. Governor Weida, do you worry about the impacts, the lagged impacts of their policies on the global economy and on your economy? Oh yes, but for ourselves, we haven't had any serious monetary tightening for three decades. I was a board member of the BLJ 25 years ago. Then the policy rate was about 20, 30 basis points. Now minus 10 basis points. So... And it doesn't sound like it's changing anytime soon. So in terms of that, the lagging effects of monetary policy could be at least 25 years. We all see what will happen if we get to normalize policy seriously. But we'll have to be very careful here. Be careful what you wish for, I guess. So, Chair Powell, are you more worried about the lag impacts than they are because they're still hiking rates? I don't know, I wouldn't want to compare. I would say, I would just say again, what's different this time is actually though that markets move substantially in anticipation of moves. So by the time we lifted off in March of 2022, the two year had moved from 20 basis points up to 200 basis points. So financial conditions now move in expectation and the whole modern communication strategy really helps that a lot. So that is different. What may or may not be different, and we also haven't had this kind of tightening in three decades really. We've had tightening, but it wasn't... This looks more like tightening cycles from the 70s and 80s. So, what we see is a picture of the literature that has... The older literature says a year or two for activity and an add a year for inflation. There's new literature that says it's much faster than that. And I think we just have to use our... To watch and see what's happening. There are reasons to argue that it would be faster this time or slower this time, but I just don't think we know at this stage. Well, it kind of gets into the question about the markets. And you're saying that it's a transmission mechanism. You're all talking very hawkishly and saying there's more work to be done and we're still worried about inflation. The markets pretty much think you're almost done. All of you guys. Maybe one more hike in July and then done and then into cuts next year. Is that wrong? President LaGarde? You know, I look at the data we have. I look at the mandate we have. I look at the transmission lag. And we've decided for ourselves that we would use three criterias. That's what we are focused on. Of course, we are not completely oblivious to what happens in markets, but we have to be guided by what the mandate is, what the data delivers and what criteria we take into account in order to determine our policy and to establish our stance going forward. That's the only way to go. But I guess there's financial conditions and I don't know, Governor Baylor, are they working against you? You're trying to fight inflation and MSCI World is up nicely this year. Well, by the way, I mean, the market, I don't think things were nearly done at the moment and they've got a number of further increases priced in for us. My response to that will be, well, we'll see because we, as we were saying earlier, we're essentially evidence driven in that sense. So we'll make our decisions based on that. I think you're right to point out, as you said earlier, and I would draw this point out, that there are two parts to this. There's where the peak is and then how long it's sustained beyond that. And I think both of those are relevant. Both of those are things that will, I mean, sorry to state the bluntly, and the obvious will emerge with time. But I've always been interested that the market thinks that the peak will be quite short-lived in a world where we're dealing with more persistent inflation. Right. I mean, they did finally price out the cuts in the US a few weeks ago. Market was primed for cuts. I assume you were pleased to see that that's no longer the case. So if you go back and look at forecasts from the participants on my committee on inflation, you'll see, we've been consistently thinking this is going to take some time. It's going to be a process that will take longer than we would have hoped. And it may well be a bumpy process. But markets have gone back and forth between pricing and what appearing to price in pretty quick declines in inflation to coming back to being more in alignment with the thinking of the committee. And that's where we are right now is closer to where committee participants are. But as Christine said, we're not focused on what the market's forecast is. We have our forecast. All of us who are on the committee, we work hard to develop an understanding of what's driving inflation and what the path forward for inflation is. We make our best estimates. And that still is that it's going to take some time. It's just going to take some time. Inflation has proven to be more persistent than we expected, not less. And of course, if that day comes when that turns around, that'll be great. But we don't expect that. We don't plan for it. So is it counterproductive to you that the stock market has rallied, the bond market has rallied? I mean, the market is fighting the Fed. The market thinks you're closer to the end. And I mean, that does make financial conditions easier. You can't fight the Fed, but they're fighting the Fed. Is that a problem? I don't see it that way. I don't look at it that way at all. Honestly, we have different jobs. Our job is to bring inflation down to 2% and sustain maximum employment. That's our job. That's what we think about. We look at the data and that's what we care about. And markets react, different parts of the market react in different ways. It's just not something that is a principal focus of our work. But it did seem last year like you wanted a weaker stock market. You used the word pain at Jackson Hole. It seemed like you were trying to communicate that financial conditions should tighten and less so this year. Is that right? Not really, no. Of course, we work through financial conditions. That's what we do. All the things we do and say work through financial conditions to affect the real economy, that's how it works. But it's broader financial conditions. So we're not focused on any one market. We're never thinking, oh, let's do this to this market. It's just in general, let's communicate what we want to do and why we want to do it and financial conditions adjust. And that's really all we can do. We do not target particular parts of the market. Although, of course, we do monitor market conditions. So you don't care what the stock market's doing? I look at broader financial conditions. It's one of many, many conditions along with interest rates, credit spreads, everything, all of the conditions and the availability of credit. It's one of many, many things. Again, we don't focus on any one thing as the key thing. Governor Wade, how important is it to you, the markets, as it relates to financial conditions and the mechanism for monetary policy? I mean the stock market? Stocks, bonds, currency. So stock prices have been rising fairly sharply since spring this year. Stock prices theoretically are affected by interest rates and investors' view of the economy. We haven't changed interest rates, so probably investors have become more optimistic about the future of the economy. Of course, we don't want serious financial imbalances in the economy, so we keep monitoring. How do you think about, President Lagarde, the risks to the economy, especially geopolitical risks? In Europe now we have this, we were all glued last weekend to the news out of Russia and the Wagner Rebellion and we're wondering if now political instability in Russia presents a further geopolitical risk to the global economy. I look at it, we all look at it and we are all concerned about geopolitical development. By virtue of the profession that we have, because it does have an impact on supply chain, it does have an impact on trade, it does have an impact on the uncertainty and we can only say that at this point in time, uncertainty is high overall and a big factor of that uncertainty has to do with the geopolitical difficulties and conflict or quasi-conflicts that are bound at the moment. So yes, we are looking at that, but do we have to make a moral judgement on this, that or the other? This is not the job that we have, but it clearly has an impact on how the economy is going to change and be transformed and whether it will have an impact that is inflationary or disinflationary I think is also to be determined. I think there will be various schools of thought along those lines. Yeah, I wonder how you think about next winter. I mean, Europe got lucky. We hope it's mild. What if it's not? But storage is what, 69%? Michael, the expert on Isabel's panel said that 69% and we are going to hit 95% by the end of the summer. So that should put us in a good position for the winter. But I'll say one thing which probably we had not factored in sufficiently and maybe that applies to all of us. It's the resilience of our economies and the resilience of the entrepreneur, the corporates, the way in which we have sort of in a matter of a few months reorganized ourselves. Just think one year back, everybody thought that the German model was dead, that Europe was going to be completely on its knees. Well, these things have not happened and the resilience has been demonstrated at all levels of society. Totally agree with Christine on this. That resilience, I mean, you see it when you talk to businesses. I spend a lot of time talking to businesses and I've spent a lot of time in recent months talking to food producing businesses to try to understand the sort of, yeah, the slower than frankly we expected decline in the rate of food inflation. And one of the things that I get quite consistently and this is where sort of the Ukraine Russia situation comes through for real, is they say, well, you know, last year we bought forward sort of supplies to a much greater extent than we would normally do because we were not confident we could actually get them. Consequences, we've locked in higher prices for, you know, sometimes they say six months to me. And that of course is affecting the, you know, the passage of inflation, particularly food prices in this case. So these things do have a very direct effect and are continuing to have a very direct effect actually. But there's nothing central bankers can do about that. Is there? Well, I think the first thing we need to do is understand it. That's a good starting point. Well, we have to then, You can always just keep crushing demand but you can't do anything about food supply. Well, we have to design policy. I mean, we have to design policy and, you know, take our decisions with the best. Yeah, we always take policy, yeah, we always take policy decisions on a forward looking basis. So we have to do it with the best information and understanding we can get at these things. So do you still, so to what extent I guess is the war in Ukraine driving supply side inflation for materials around the world? Well, following on from what I was just saying, I think the conclusion I draw from that is, and this is what the businesses tell me is, yes, we are going to see actually a fall in the rate of food price inflation, for instance, but it is taking longer than we expected. So that's what we have to factor in and decide how best in a sense to respond to that with monetary policy. It's not just Russia. Governor Weta also, you know, we're following the tensions that have increased between the US and China, between Europe and China. Do you think that's having a material impact on global growth? Well, at least there's a tendency to relocate production sites out of, say, China into other Asian economies, including to some extent Japan. So in the short run, this is having a small positive effect on the Japanese economy through a business-fixed investment. But in the longer run, there will be inefficiencies all over the place, so we'll see. So Japan's a beneficiary of the flight out of China? In one sense and in the short run, but in the longer run, I'm not sure. I mean, Chair Powell, how do you think about, it's obviously a risk and it hurts trade, how do you think about the US-China relationship as it impacts the economy? We don't have any role to play in the relationships between the countries, but China is a very large, important economy. It's a big trading partner, mainly consisted of us buying things that are made in China. I don't think, and of course, in the Chinese economy came out of the COVID and looked like it was recovering strongly now. It doesn't look like that. It looks like it slowed down and there are some issues there. From the US standpoint, at the margin, that probably means a little bit less global demand. I wouldn't say it's a first-order consideration for us, though. How does the Chair Powell reference the disappointing nature of the Chinese economic recovery? How does that play into Europe's recovery or the global growth picture? Well, first of all, I think we have to be attentive to the emerging market economies at large. At the moment, they are producing about 60% of global growth, some of which is now a bit more focused on domestic development and consumption and less so on trade. But if you look at the trade volume numbers from China to many other countries, particularly the advanced economies, that has not changed significantly. So the trade volume is still significant and I'm not breaking any news here. The Chinese authorities themselves say that they're likely to have a 5% growth this year in 23 rather than the 6% that they had initially forecasted. So that will have an impact, given the size of the Chinese economy, on global growth at large. So we have to... When we do our projections, when we look at the economy, we look at the global economy and then we sort of narrow down and zoom on the European economy and the euro area in particular. But everything that happens in China and the United States and the UK and Japan in emerging market economies actually matter for us because we are strongly interrelated and have been trading with each other for a long time. And if anything, we've learned from COVID in addition to the pain and suffering for many, it's the fact that we are vastly dependent for the supply of rare earth and various metals that will be critical for the development of the economy of tomorrow if we decide to firmly go towards the green economy that we should be aiming for. Yeah, as an open economy, one of the things that's just exactly as Christine says in terms of how we do our process, one of the things that we spend quite a bit of time on is world export prices. Now, actually in the recovery from COVID and of course this was the supply chain shop, we saw quite a big contribution to goods price inflation from world export prices. We're now seeing those prices definitely start to weaken. So that will be another determinant going forward of policy. As central bankers, do you plan for the worst case scenarios on the geopolitical front? I mean, if China invades Taiwan, then what? What does a central banker do? Is there a contingency for that, Chair Powell? We use our tools to achieve our legal mandates. If that happens. Got that fed speak down. You'll hold a special meeting. No, I mean, it's a volatile world we live in, right? So we do have, in every FOMC cycle, we look at our staff works up six or seven or eight alternative simulations and they simulate different things. It's not so much geopolitical events though. It's more different ways the economy could play out and we all the participants read those and think about them and talk about them and they come up in our meetings, we talk about them. So it's very helpful because you can't get too focused on the modal path in a world where it's just very hard to predict the economy even in normal times it's very hard to predict the economy let alone times like today. What sort of simulations do you talk about? I'm going to leave that to your imagination. I bet I can think of a few. President Lagarde, Chair Powell did talk about me and one of the things that I don't know that there was a simulation of is we had a few bank failures in the US this year and I know it forced some of you into action to shore up banking systems. Are we in good shape now as the global and European financial system in good shape? Have we healed? Here I can only speak to the banks over which we have supervision and those are the European banks but I'm looking at the Euro area specifically. We have been enforcing Basel III to the entire banking sector. The capital ratios are very high, 15.3% if I recall. The liquidity coverage ratio very high as well. So we have not experienced the turmoil or the difficulties in Europe and Europe does not include Switzerland. Thank you very much. But we are extremely attentive. We reinforce the stress testing constantly. We are very, I'm very pleased to see that the Basel III agreement has now been reached as I understand between Parliament, the Council and the Commission so that we can actually roll out Basel III with as limited exception as possible and we have to continue doing that job. Any lessons that you took, Governor Bailey, from what happened earlier this year? Well, let me start with a sort of bit of backdrop. I think it's important during what Christine was saying. I think it's important to, in a sense, reflect the fact that the regulatory changes we made after the global financial crisis have paid off in the sense that we have been free and we are going free some huge economic shocks. And the banking system, certainly I can speak again as Christine does, I can speak for the UK banking system is resilient to them and is doing what we want it to do which is support the economy, not the other way around, to be honest, has gone back to the crisis. So that's an important starting point. Now, I think there are important lessons from important issues that we have to reflect on from what happened. Christine made her subtle reference to Switzerland. Well, there's a huge sense of irony in the British, Christine. Look, I mean, there is obviously a question posed by the Credit Suisse handling which is are the resolution plans of the major banks that we've spent the last 15 years developing fit for purpose or are they not fit for purpose? And if, well, come to that, if they're not fit for purpose, then of course we cannot sit here and say, all's fine, because clearly we're going to be regrettable though it would be after 15 years of work, we're going to have to sort of, you know, tear them up and start again. Now, I'll give you my view on it. I'm going to say this. I have not yet heard the case made to me which suggests they are not fit for purpose. I'm going to state that. But I'm not going to leave it there. We have got to have, you know, we've got to have, we've got to have this out and decide whether, you know, it goes one way or the other. My starting point is I remain to be convinced of that assertion, but we can't let it rest there. I think we've all got the question of, you know, how our banking systems handle, you know, a steep rise in interest rates. We do stress tests to test that. We've got capital provisions for, you know, related to that. And we've all got to think hard. I think the third thing I'd say is we've got to think hard about the speed of run question. But I think we've got to think pretty carefully about that because, you know, if we go to extremes on that argument, we're essentially heading to narrow banking. And I, you know, speaking of that, I don't think that is a sensible place to head to. So we've got to think quite, you know, quite carefully, but quite, I think creatively about how we maintain the banking system that does what we wanted to do, which is create credit in the economy, create assets that are naturally illiquid and deal with the speed of run question. And we've got to take that one on. We're actually going to get stress tests this afternoon in the US, which I won't ask you about, Chair Powell. But I will ask if you think that the US regional banks are resilient right now. I do. So I think, first of all, I think the whole, the overall banking system is strong and resilient with very high levels of capital and liquidity, very double the levels that they were at, and then some before the crisis. So the innovations that we put in place, the regulatory changes in higher capital, those are all in place in the United States as well. So when it comes to the events we had earlier this year with three banks that had pretty idiosyncratic business models and funding models as well, I think we need to learn lessons and we're not hiding from that at all. We understand there's going to need to be regulatory, strengthening of both regulatory and supervisory practices as it relates to institutions of that general size, I would say. You got a lot of questions on that from Congress last week. That's mostly what they wanted to talk about. They want to make sure that you aren't, in part, not going to increase capital levels and sort of choke off the small and regional banks in this country and make it hard for them to compete. So the U.S. has something like 4,500 banks. It's the most banks by a pretty big margin, I think, of any major economy. And we think it's a real benefit to have banks of different sizes and business models that serve local communities and offer different products as well as having the large banks. And the large banks in the United States are very strong, well-capitalized, a lot of liquidity. And they've been a source of strength, I think, through the last couple of events. So the, I think it's important that whatever changes we do make, keep in mind the need to preserve the business models of smaller banks and not just of the largest banks. Any concerns for you, Governor Weida, on the strength of the global financial system at this point as we go through this, I don't know, once in several decades tightening period? I can only talk about Japanese banks. I think they are well-capitalized. They're capitalized. They have enough liquidity. It's true that some smaller banks, regional banks, are sitting on non-negligible amount of valuation losses in their security holdings. But on average, that's about 1% of their co-album capital. So it would be okay. But if we do get to normalize our monetary policy, because we get into going to the 2% inflation rate, equilibrium in the sense I discussed earlier, then rates may go up by large margins and we'll have to be careful. We'll have to be carrying out all sorts of stress tests, I think. I also wanted to ask you if you go into more normalization stance away from negative rates and the yield group control, if you, how you'll manage the risk of the government's enormous financing needs and whether that's a concern that you think about. Well, we keep saying that it's the business of the government and the diet to create sustainable government finance. Fiscal policy in general. I'm curious if you guys will bite on this. Is it helpful right now or hurtful? President Lagarde. You know, everybody has to do what everybody has to do. Man's got to do what a man's got to do. Monetary policy makers have to decide on monetary policy and fiscal policy makers have to do their job. It is true that there are circumstances where working hand in hand and supporting each other has proved helpful. I think we had a very good demonstration this morning in one of the lectures that we had. I think what we have very clearly stated as a governing council of the whole euro system is governments, please, it's time now to roll down the measures that you had decided for COVID and for energy purposes and that you adopt a path that will take you to better sustainability of your public finance. So we hope to see that. And the fiscal space that has been allowed for the various non-conventional fiscal support that were decided back in 22 and 23 very much should be rolled back in the course of 23 and certainly should not be expanded in 24, bearing another major shock. But that's our recommendation and we make it very clear in our monetary policy statement and have made it very clear in the last statement that we issued. I mean, we learned in the UK what was that last year when monetary and fiscal policy don't work together. It can be a big problem. Well, what we had to deal with in the UK last autumn was actually a financial stability issue. We dealt with it and it was very clear that that was the issue we dealt with. We didn't deal with anything more than that. It's not our job to get involved in fiscal policy in that sense. And we always, when setting monetary policy, take fiscal policy as announced, as a conditionings assumption for our decisions. So I don't go beyond that in terms of commenting on the stance of fiscal policy. I mean, the one thing I've said in recent times, and I don't mind saying it again, is that I welcome the fact that the Chancellor is very much using fiscal policy to try to address the structural issues in the economy. That's not a comment about the stance of fiscal policy about more or less. It's a comment about the fact that going back to the point I've made about labour markets and actually the low potential rate of growth in the UK economy, that the more we can do to tackle that, frankly, the better. What about you, Chair Powell? I mean, there's been a lot of fiscal largesse in the United States, the COVID stimulus, and now even new policies that are just filtering through like Inflation Reduction Act, Infrastructure, Chips. There's still American Rescue Plan Act money getting doled out. Isn't that making your life harder? Well, so echoing my colleagues, our assignment is to deliver price stability kind of regardless of the stance of fiscal policy. And we don't play a role formal or informal in advising the fiscal authorities. There are other agencies in Washington that do that, and that's really not our job. I will add though without crossing any lines that the spending during the pandemic was very high and it's come down. And so we look at the fiscal impulse from the level of spending and it's really not material. It may even be slightly contractionary, but let's just say it's flat. You identified those bills and I think you are seeing some of that money showing up in construction numbers. It's supporting construction activities, particularly the infrastructure bill. But I wouldn't say that that's a, if you look at where the inflation is in the economy, I wouldn't say that that's an important driver of inflation or something that we think about or consider. So you mentioned the consumer. So the excess savings, you think have pretty much come down? Where do you think the US consumers had it? The consumer had savings from two sources. One was just the fact that people couldn't travel and couldn't do, couldn't kind of spend money on services. That was a lot of it. And there were also the fiscal transfers that happened. And there are many different estimates, I would say, for people at the lower end of the income spectrum who tend to have a high marginal propensity to consume. Most, but not all of that money is gone. So there's a residual, there's certainly some residual support for spending in that in laws that passed at the beginning and during the pandemic. But that's, again, I wouldn't say that's today, that the main driver. I think if you look at the strength of the labor market, still creating more jobs than there are new entrants to the labor market, your wages are still pretty high. So you're driving up disposable income and that is driving consumption and that's driving the economy. I wanted to also ask you guys about the balance sheet, very hot topic. Governor Weta, how do you think about the expansion of the balance sheet and how much is too much? Well, it's a tough question to answer. At the moment, we are using government security purchases to hit the range for the long-term interest rate we have set, which is zero plus minus 50 basis points. So the size of the balance sheet is an endogenous variable. The rest of you are kind of in shrink mode in the balance sheet, a roll-up mode. You've been more aggressive, Governor Bailey. Has it gone smoother than you expected? Well, so far, I don't want to tempt fate. It's gone very smoothly actually. By the way, the reason that you say more aggressive just to be clear is that we've got a longer duration of bonds in our portfolio, of government bonds in our portfolio. So leaving it to an organic run-off would mean a lot longer run-off for us, I think. That's why you're outright selling. That's why I was selling it. So the target we set for the year, the 80 billion target, was the sum of the natural run-off plus the difference between the target we set and that. And it's that element that we're doing as active sales. So that's gone, I would say, very smoothly actually. So far, I'm very happy with the way it's gone. I think the second question that we're certainly looking at actively, of course, is just how far will we go? And I look at it particularly in terms of the stock of reserves now in the system before we hit what I would call the equilibrium level of reserves. Now, we may go on selling the QE stock below that because we would shift our operations around. I would expect to do that. But it's important to focus on where we think that sort of natural level of the balance sheet, which won't be constant over time, by the way, but where we think that natural level of the balance sheet is relative to where we are today. How do you think about it, President Lagarde? And is there pressure building for you to go faster when it comes to shrinking the balance sheet? I would say that the interest rate is the primary tool that we're using at the moment. Second, there is almost a contractual reduction of the balance sheet of the ECB because there is a reimbursement of the teltro that we had put in place during the pandemic. And that is actually happening now, if not yesterday or the day before. Third, as of the 1st of July, we will stop any reinvestment under the asset purchase programme. So there is a natural declining of the balance sheet of the ECB, which is only a first step. We are discussing our operational framework. Hopefully, we will be able to complete that work in the next six to nine months and that will really determine the size, the desirable size of our balance sheet, which is always a factor of also the circumstances and the situation we are in. But that is coming. Is it going smoother than you thought it would as well? Chair Powell, QT. Say it's working as we had hoped and expected it would work. We have an entirely passive programme as treasuries and mortgage securities mature. They roll off subject to a cap and it's been moving along at a pace, the underlying pace if you hit the cap is about a trillion dollars a year and reserves appear to be quite ample, so it has ways to go. Is there anything that would make you speed that up or slow that down? You know, we always say that we're prepared to adjust in light of evolving conditions, but I don't see anything that would cause us to want to do that right now. OK, so in the moments that we have left, we've talked about a lot of the risks, we've talked a lot about some of the concerns out there. I want to hear some optimism, maybe, and what makes you feel, I mean none of you are really talking doom and gloom on recession, but what makes you, President Lagarde, optimistic right now? However you want to interpret the question. Otherwise there are lots of things that make me happy, and I hope for all of you. You know, I'll just mention one success, which I'm really proud of and I'm very proud that Fabio Paneta was the one who let that exercise on behalf of the entire group. Today, the European Commission has published the legislative draft for the digital euro, for our CBDC, and that gives me hope because I think that it really demonstrates the capacity to innovate, the capacity to work as a team, the capacity to anticipate what digital payments will be tomorrow. Now some people are very sceptical and they say, well, you're taking risk, financial stability, possible runs that will be accelerated by this, and all I would say is number one, you have to be ready, you want to keep the sovereignty of your currency. You know, so many years ago, who would have thought about all the users and the applications that you have on your cell phone? None of us. So being prepared, being ready, paying attention to what actually Europeans and particularly young Europeans want in terms of currency and form of currency is something that we have been doing, that we have accelerated, that we have not decided for sure, but at least the legislative piece is on the table. There will be a lot of discussion, and that's in a way also the result, one of the good benefit of COVID. We have talked about the downside of COVID and the consequences, but the way in which so many of us have become more digital, better equipped, probably more productive, it will be demonstrated probably with a lag time. But when I look at my member states, the countries that were least digital have really travelled very fast to become much more digital, so that's a good reason to hope. And the resilience demonstrated, but I have mentioned that earlier on, by everybody, from the individuals, to the entrepreneur, to the corporates, to governments. In Europe, decided to get together to borrow jointly, despite the fact that it's laborious, that it's painful, that it gives a lot of things to report about to a journalist, is also a sign of progress. And just to be clear, a digital euro will happen when? That will be decided by the governors. In Governing Council, we will decide that at the end of October, and then there will be another phase of piloting, experimenting, fine-tuning, because if and when we go, as will be decided by the Governing Council at large, we want to get it right. So we're not going to do a half-start or a fake start. We will move with success. What makes you optimistic, Governor Bailey? Well, actually, I'm going to build on Christine's theme, because as well as we're also working on retail digital euro, we're actually also working on wholesale digital money and completely rebuilding our wholesale payment and settlement system in the Bank of England to enable what could be a complete revolution in the infrastructure of financial markets and trade finance. And this is very exciting. So we put the wiring in a lot that we came before last. The engine should go in next year, and this has enormous potential to change the world at the wholesale level as well. It's interesting. I feel like the world has moved on to AI beyond digital payments. Are you guys incorporating AI into your thinking about economies and your toolboxes? I think we're all on a learning curve. I don't know. I feel quite old when it gets to this. But yes, I mean, we're looking at it in two respects. Certainly one is, well, three respects. One is how it will affect the economy. Two, how we can use it ourselves, both in our sort of analytical functions, but also actually in our operational functions. And we're looking at it, I would say, with very open eyes. You can see the strengths and you can see the current weaknesses of it. And of course it moves very rapidly. So yes, certainly I can speak for ourselves. We're having to devote quite a bit of time to what the potential is for that. Chair Powell, is AI one of the things that makes you optimistic? So on AI, we're just doing what everyone else is doing. We're trying to get smart about it and it's obviously has huge possibilities. Technologies tend to propagate through the economy fairly slowly and this one maybe the exception, maybe not, I don't know. But it's something that we're spending a lot of time on. Way too early for conclusions. I wouldn't use optimism, but I would say this and answer your first question, which is when inflation first arrives, it's really due to very strong demand for goods and goods pipelines that just aren't working in shortages. So that's where it comes from. It wasn't about the labor market at all, right? Or very much. As we get to this stage and to looking forward, we think it will be significantly about getting the labor market supply and demand back in alignment. I would say it's a positive thing. I'll say it that way. It's a constructive thing that we've been able to raise rates 500 basis points with the expectation of going further and we still have a very strong labor market, but nonetheless one that is in fact cooling in just the way we would have hoped, which is to say through things like lower job openings. Job openings are coming down. The quits level has returned to its pre-pandemic level. Wages have, if you look at employment compensation decks or average hourly earnings, they've moved down about 1% towards more, still very high, but towards more, so a more sustainable level that's consistent with 2% inflation. So I would just say that's the makings of if that process continues in a gradual way without really any effect on employment, the longer that goes on, the better. And in a way that's, I take that as a very constructive path. It is not guaranteed, but the fact that this is really there and that's what's been happening for a year, more than a year into our tightening cycle, I would take as a positive thing and perhaps a hopeful one for the future. Just be careful not to overdo it. Right? Right, right. What about you Governor White? Let's see, as other central banks are thinking of issuing digital monies, we are taking a different route and we have decided to issue new currency bills starting next year. To go on all-in paper. That's what will cheer up public's confidence in the BOJ. More seriously. As I said, wages have started to rise at 2% or so for the first time in three decades. More importantly, we are seeing as a sign of a change in inflation expectations, changes in price-wage-setting behavior of businesses. So previously, businesses hesitated to increase prices because if they did, others will not follow suit. Now say they are raising wages because if they didn't, they will have trouble recruiting workers because others are raising wages. We think this is a good sign for us. So the topic of Cintra of this ECBOO forum is inflation, volatility. So now is prediction time. In one year, when hopefully I'll be invited back, President Elegar, inflation rate in the UK is what? Last forecast, we expected inflation to come back to target towards the end of next year. We're going to start the next forecast in about two weeks' time. I was trying to get a jump on that. Yeah, you're trying to get full on that. Yeah, I was trying to jump on that. Do you get to 2% by this time next year, President Elegar? You said that you're from now, right? Yes. Okay, so the projection we have is 3% for next year. Headline. Will you be satisfied with that? I want it to be timely. We all want it to be timely. Timely, okay. Chair Powell. I don't see us getting back to 2% this year or next year. You don't? No, I see us making steady progress on, this is core inflation. Headline inflation is coming down, that was lower than core. But core inflation, I don't see us getting to 2% this year or next year, I see us getting there the year after. 2025, core inflation 2%. So you're going to be restrictive for a long time. No, well, we will be restrictive as long as we need to be. But if inflation is coming down sharply and we're confident that it's on a path to 2%, that would be a different situation. You would begin to think about loosening policy, but we're a long way from that. That's not something we're thinking about now or in the near future. Governor Weida, are you going to get to the 2% by your measure? So our projection as of April, inflation projection, has for 23 fiscal year 1.8%, 1.8 headline, 2.0% for 24. Now, this makes my job of justifying underlying inflation rate staying below 2% a bit harder. But we keep saying that our... We don't have a lot of confidence in this 2024 guess. This may change depending on the data to come up. Do you guys feel relative? You've been through a lot of hard moments, COVID and the inflationary challenge, and now we're starting to see economies weekend. Do you feel like it's a particularly difficult point in your central bank journeys, Governor Bailey? Yeah, until we get inflation back down to target, we've got a very big job to do and it's a job we have to do. It's stressful? Well, I don't know about stressful, but I think... Look, we sign up for this job and you don't get to determine the conditions that you do it in, so we just got to do it. I mean, that's our job. For you, President Llyfrge? Likewise, man's got to do what a man's got to do. We signed up for the job and a woman's got to do what a woman's got to do as well. Thank you. Chair Powell, haven't seen you stressed. Sorry? I haven't seen you stressed. We have a job to do, we know that. We know that society is counting on us to do this job and that it really matters. Price stability can matter for decades. It can benefit for people over time. I think we all know that and we'll do the things that we need to do to restore it. And Governor White, I was feeling good. I didn't know that there was going to be so much troubling and so many press conferences. Welcome to the World Central Banking. Thank you all so much for taking the time today and all my questions. It was a pleasure. Thank you.