 Good morning, everybody. Welcome. Thank you all for being here. Thank you to all the distinguished panelists here. This is the World Economic Forum session on monetary policy. The state of monetary policy now. Where will things land as we have this interesting environment of divergent monetary policy in the major economies with implications both for those economies and also obviously for the rest of the world I've got. I'm Gerry Baker. I'm the editor-in-chief of the Wall Street Journal and I'm very privileged to have with me a very, very distinguished panel. I'll very briefly introduce them and then we'll get straight into questions. On your far left, David Rubenstein, of course, you know, co-founder and CEO of the Carlisle Group. Next to him, Li Dalquie, Dean of the Schwarzman College at Tsinghua University in China. Next to him is Carmen Reinhart, professor of the International Financial System, the Harvard Kennedy School. Of course, next to her you know Anthony Scaramucci, who's just recently been appointed, of course, with the head of Skybridge Capital, but has recently just been appointed to President Trump's, President-elect Trump's transition team, and of course to President Trump's administration, which takes office on Friday as the director of the White House Office of Public Liaison. We then have Thomas Jordan, chairman of the governing board of the Swiss National Bank and to my immediate right, Axel Weber, former head of the Bundesbank, chairman of the board at UBS. So a very distinguished panel, tremendous amounts of expertise. Let's get, if I may, straight into it. I'm going to start with you if I may, Mr. Jordan. The, we are seeing, as I said, divergent economic, divergent monetary policy right now, perhaps more divergent than we've seen after a long period in which broadly speaking, monetary policy in the major economies was moving in the same, broadly the same direction, with obviously different degrees of stimulus. That now does seem to be changing. The Fed has now begun the process of raising rates to interest rate increases in just over a year, widely expected to increase rates further. ECB, meanwhile, continues to still be in stimulative mode. Bank of Japan too. Signs of the Bank of England may be perhaps steadying the ship. How do, does the, how do, should monetary policy makers navigate now, both in these major economies and around the world, navigate in these changing circumstances with the implications that these divergent rates have for the rest of the world? Well, I believe first of all, the divergence is not such a bad thing. So the normalization of monetary policy in the U.S. is a very positive sign. That means that U.S. economy is on track and it's all normal that their certain divergence take place. So I do also not believe that the divergence really becomes extreme. So the more interest rate increase in the U.S., probably the dollar becomes stronger. And also the situation in Europe will improve. So also their interest rates may increase over time. And maybe a third point is we do not exactly know where exactly the new equilibrium real interest rate is. So how far we have to increase rates is still an open issue. So I would expect that all central banks and the specialists in the U.S. the movement will be gradual. And from that perspective also the disruption in the market should be to some extent limited. Anthony, can I ask you what, as Thomas says, we are seeing a normalization of interest rate policy, of monetary policy to some extent in the U.S. The Fed has said that after its latest meeting expecting perhaps three rating, three more 25 basis point rate increases this year. There's obviously a high level of uncertainty in all of these forecasts. But where do you do you think the U.S. is now firmly set on course for continued normalization, rising policy rates as well as rising bond yields? So my personal opinion I do, because if you look at the trajectory of growth, the increase in wages, you look at the global economy, I would think the Fed would say that we're dug out now and it's time to create that normalization. However, if anybody in this room thinks that we are in a interest rate normalization, we are frankly not. And I know that Professor Reiner probably agree with me on this. If you go back through your book as an example and study 120 years of modern economic history, we are at historically very low rates. And my guess is over the next two to three years we will be off of what we would describe as normalization. And Carmen, do you think that how far is, I mean this normalization process has got a long way to go in the U.S. even if we are actually embarked on it, it's got a long way to go, how do you expect it to play out? Since the Fed was founded in 1913, this has been the slowest of any normalization. And I think concerns that because of the president-elect stimulus plans that maybe the Fed will be moved to go quicker, I am not sure I see that because one thing that's very much in play in monetary policy is currency fluctuations. And I would concur that the strength of the dollar, I think, will be a factor that would argue for more moderate pace of normalization in the U.S. I would also add to that that leverage is still quite high in the U.S. in the aggregate and that's also another mitigating factor in terms of how quickly things will normalize. And of course Japan and the ECB, BOJ, ECB are in much, much longer leash. Talking about the ECB, Axel, if I may ask you, one of the things we're also seeing right now is that having had the last six years where it's been essentially a monetary policy story, all of the onus has been on central banks essentially to elevate what has been a continuing, very disappointing rate of growth in most of the developed world. With the election of Donald Trump, there does seem to be some indication that maybe the balance is shifting and that we may start to see some fiscal stimulus which will actually allow perhaps the Fed to further, if you like, normalize monetary policy. Is that, do you think that this shift between the shift from monetary towards fiscal accommodation is going to be, first of all, is it going to happen in the U.S.? And do you think, what will the implications of that be? What else we're including in Europe? So yes, I think it's likely to happen. Maybe one sentence to the global stance of monetary policy. The expansionary policies of Japan and the ECB are making more than outweighing the reluctant tightening of the Fed. So my preferred measure for the global monetary policy stands at zero or negative rates is actually the rate of growth of the monetary base. That's still roughly happening at about 10% per year. So monetary policy is still expansionary on a global scale. I think normalization would require for the Fed to continue and for the ECB and the Bank of Japan to close the gap to the Fed from below. That's very unlikely to happen. First, because I don't think the Fed will continue to tighten beyond maybe another two interest rates move this year and maybe some more tightening in 2018, but they're definitely not going to go to a normal environment that we've seen in the past where the short end of the curve is going to go way up. And the ECB and, in my view, also the Bank of Japan are not going to join the Fed. So I think monetary policy normalization is not going to happen. You're going to more likely see the Fed at some point smooth-paced out and move less on interest rates. They have to move somewhat because they have to take the more expansionary forward course of fiscal and structural policies into account. So I actually think it's a good solution that we move away from overreliance on expansionary monetary policy to a more interim solution away from a corner solution where monetary policy had to carry it all to one where fiscal and structural and monetary are combined in a kind of intermediate solution, each policy contributing. But that's not likely to be followed in Europe or in Japan because in Europe I really don't see at this point in time the structural reforms on the horizon. Everyone's in an election campaign. So this is the time where people are making promises to voters and these promises will not be structural reforms that will impact on the voters. So I don't think that this year is the year where the normalization will progress. I think we'll see normalization in the U.S. reflect the advanced state of the U.S. economy coming out of the last crisis. Europe and Asia are not going to, at least the large countries in Europe, the ECB and the Bank of Japan, are not going to join that. So the current correction in China will lead to authorities being quite cautious on not having a much further depreciation of the currency because of fears about confidence effects in the economy or because they have to strike a balance between external and internal developments and stability. So I think most of the central banks around the globe are striving for stability but not really for normalization. Professor Li, if I may, you again, as Dr Weber says there, we have seen already, just with the very gentle movement that the Fed has done and the signaling of further movements, the very significant move in bond yields since the U.S. presidential election. In fact, since the middle of last year, we've seen a very significant fallout in currency markets and the implications for the rest of the world, including obviously in China. China is now fighting hard. The Chinese administration is fighting hard to restrain capital outflows. What are the global, back in, we had the temper tantrum a couple of years ago, the temper tantrum rather a couple of years ago. Are we now seeing, what are the risks for the rest of the world as the U.S. continues down this path and U.S. interest rates in particular, both policy and market rates, continue to move up? I think we are entering a very chaotic period. During the past two years, even though the U.S. Fed has been claiming to trying to go back to normal monetary policy, in effect, in effect monetary policy in the U.S. has been expansionary in the following sense, because money has been flowing back into the U.S. economy. From China alone, by my calculation, in each of the past two years, as much as 500 to 600 billion U.S. dollars has been flowing back to the U.S. from China. And so I call it actually a super QE program in the U.S. The reason is because everybody in the global financial markets is talking about hiking and tapering, so on and so forth. So there's already kind of market consensus that U.S. interest rate will go up. So money goes back. This is China alone. So in this regard, I do not think the hiking policy is reaching its objective. The U.S. monetary condition is actually very loose. That's why the housing market is going up. That's why the stock markets have been setting new records in the U.S. So what should be done? What should be done with the U.S. Fed is that they should use unconventional methods to exit the unconventional monetary policy. That is to quietly sell the treasury bonds of the long run to hike up the yield of the long run, right? And therefore to stop inflation in the long run, not in the short run, because the short run inflation in the U.S. as far as I read is not a threat. So here we have a chaotic period. All central banks outside the U.S. are talking about depreciation, especially in emerging markets, and U.S. exchange rate is keep on going up. It's not for the benefit of the U.S. actually one of the very, very few, very few common thing that the president elect Trump and China agree upon is the exchange rate, right? So your future government wants the R&B to stop depreciating, and so does the Chinese government. This is the only achievement of the Fed. We're going to agree on a lot more than that. I hope so. Let me come to you, David. History of course never repeats itself precisely, but 1994-95 we had a period where the Fed very aggressively raised interest rates more than anybody's obviously expecting. This time around we had a tremendous response reaction in the bond market. That created a rapid appreciation of the dollar with all kinds of concomitant financial implications for the rest of the world, most notably, by the way. This is another issue for President Trump, but Mexico in particular, but also other emerging markets. What do you see as the potential implications here as we get this, if we are going to get this steady normalization of rates in the U.S.? Remember, when the Fed was set up, its purpose was to make sure that the currency was not overly inflated. That was really the purpose of it. Subsequently, legislation was passed to say the Fed is supposed to take into account unemployment as well, and now the Fed is taking into account GDP growth rates. But now the Fed has to really take into account the impact of the currency, because right now we're in a situation where the currency has gone up so strong, so much, the dollar, that we do run the risk of potentially another Mexican-type crisis, where the dollar is so strong that people who borrow money in dollars cannot repay them because they're earning their money in local currency. What's the total outstanding value of that? Right now there's about four and a half trillion dollars in emerging market corporate debt that is dollar denominated. So let's suppose you're a Mexican company, you're earning your money in pesos, but you're barred in dollars. If the dollar continues to appreciate at the rate it has been, and if it continues to do so because we increase interest rates more, those debts cannot be paid off, so you'll need some restructuring. At some point, if this trend continues, there'll have to be some intervention, I think, to keep the dollar from being too strong, or you're going to have to bail some of these countries out. Now, it would be ironic if Mexico needed to be bailed out by the administration. I'm not saying that will happen, but it did happen. Maybe Mexico will be bailed out and pay for it themselves as well. Just like paying for the wall. It did happen under President Clinton, and it was very controversial, but they did help Mexico. I don't know that that will happen again, but some emerging market countries are not going to be able to service their debt if the dollar continues to rise. One other point on physical policy. We haven't had a lot of physical policy, and now we're going to have some physical policy because the administration says they're going to do something with tax reform and so forth. One of the constraints that they will have, and the Congress will have, is that we're running about a $500 to $600 billion normal policy without any changes now, you would probably run into about a trillion-dollar annual deficit in a year or so. So if you're running into a trillion-dollar annual deficit, can you afford to borrow too much more and stimulate too much more and run a one-and-a-half or two trillion-dollar annual deficit? I think that one might be more than the market can take. So I think what Congress would do is likely say, well, we're going to not borrow quite that much or stimulate that quite that much. We're just going to shift things around. Finding ways to pay for some of these things is going to be very controversial. Finding ways to pay for some of the tax cuts will not be that easy. Now tax cut legislation usually takes a long time. Presidents usually propose what they want. They don't usually send a detailed bill to Congress because Congress usually writes it in the Ways and Means Committee. But if you look at George W. Bush's tax cut bill or Ronald Reagan's tax cut bill, they didn't really pass until August or September of the year in which they were inaugurated. So it's probably going to be nine or 10 months before we know what the physical stimulus is going to be. It's not likely to wait to see what that bill is going to be before they decide to make some interest rate increases. The final point is we have an anomaly in that you have a Fed that's been appointed by a Democratic president largely. There are some Republican appointees, of course, who are Republican-designated people. But it's largely an Obama-appointed Fed. Now you've got a government that's largely controlled by Republicans. How will the Fed and that's dominated by Democrats work with the Republican Congress and the Republican president? It's unclear yet. In 72 hours, almost precisely 72 hours from now, Anthony, this will all be in your inbox in the West Wing when you move in. Let's take some of these issues. Obviously, I want to broaden the discussion, too. But on this particular issue of the rising dollar and the implications that that's having for a lot of emerging markets, we can talk about Mexico or not, whatever, but clearly there it is creating challenges for emerging markets, including Mexico. What's the advice you're going to be giving the president about the policies that you can approach? But I actually think Axel actually answered the question. David gave the narrative as to why the policy is going to go in the direction that Axel said. And I think that what everybody wants, including the administration, is an independent Fed. If you go back to 1913, the 104 years of independence has served the United States well. It's also served the global economy well. But within that, what are the periods in which the Fed has been more independent and less independent? There's no question. We know that about our lives. We're never going to get this system pure. I think one of the worst words in the English language is the word ought. So many of us want the world to be a certain way. We want it ought to be a certain way. But what we know about our world, Kennedy said it long ago, that the world is unfair. And so all we can do in a forum like this or in government is try to make a fair and build a constituency basis and think about it in a way that makes that fairness. The Fed has to do that from a clinical sense and a scientific sense, data dependent as it relates to the currency. I think we have to do it in a number of different ways. One of the ways I think our administration will end up doing it, the Trump administration, there'll be a lot of symbolism in terms of reaching out to lower class family, working class families to sort of restate the agenda for the American dream. And so in order to do that I think the Fed has to be independent and I think we've got to be careful about the rising currency because of not just what's going on internationally, it'll have an impact internally to the United States as well. Axel. Well, I think the problem that was raised by before on the Fed, that's going to change very soon because there are a number of appointments that are not yet carried through so the new administration can immediately appoint some governance to the Fed. I don't think the Fed will become partisan. Central banks are independent. You might have a difference in economic philosophy between those that are appointed by the Democrats and those that will be by the Republican. And let me remind you, the Fed chairman or chairwoman can be reappointed by February next year, the vice chairman by May, so there could be a complete change over just in both houses on the Hill and in the White House but also on the Federal Reserve within the next 12 to 15 months and that's going to mean different policy priorities. It's not going to mean a more dependent Fed. I think that's pretty clear. Policy priorities are going to be, the new Fed in my view will look a lot more about traditional monetary policy rules rather than discretionary intervention in the market. You're probably going to see a Fed that's trying to retreat from daily interventions in the markets and one of the biggest problems we had with this massive central bank intervention is if you're influencing the Fed funds rate at all maturities and everything else in the financial market is priced off Fed funds, we really don't have a very good understanding after 10 years of these interferences in the market of what the appropriate pricing of most of the assets are when priced from Fed funds. And I think that's very important in the US because in Europe central banks do not just intervene in the Fed funds or in the official sector market they also intervene in various market segments so they're not only distorting the underlying pricing of the Fed funds or the European rates they're also influencing the spreads by bringing down spreads in markets where they buy and so the markets are looking forward and I think this is why you see the markets respond more positively to policy makers retreating to markets and to normal pricing and allocations of capital coming again to the forefront of how markets are pricing and how capital is flowing through our economies. On the Fed point, I just for people who don't obsess over the Fed appointments appointment by the President is a 14 year appointment the designation as chairman is five years, designation as vice chairman is five years but there's supposed to be seven members of the Fed but because the Republicans in Congress didn't agree to President Obama's choices he gave up and ultimately there are only five people right now one of whom he appointed or proposed was a Nobel Prize winning economist but that person didn't get approved so the President of the United States now Trump would presumably be able to get through two appointments right away because there are two vacancies now that were never filled by President Obama and then you've got the chair now will give up her chairmanship position in February although she could as you say we could be in the unusual position where I think her term expires in 2024 as a member but she could say as chairman about the designation unusual very unusual actually you said that central bank independence is not going to change the personnel may change but I wonder if everybody agrees with that it does seem to me that we have perhaps gone through a period look in the last 20 years or so 25 years which was kind of like the apotheosis of central banking we went through we had the Maestro Alan Greenspan we had the Bank of England given operational independence in 1997 you had obviously the creation of the ECB at the same time along lines essentially to operate along similar lines to the Bundesbank with the independence that the Bundesbank had enjoyed it does seem to me that the combination of the financial crisis the weak growth that we've had in the last eight years has eroded a lot of the confidence that people had in the supremacy and the all-knowing wisdom of central bankers and I wonder whether and well you've seen it you know Mark Carney was criticized very heavily for his interventions during the Brexit debate in the UK all the Republican candidates were very critical of Janet Yellen and including including Donald Trump there's been a lot of criticism of the ECB I mean Carmen you're a student of the history of these things do you think that we could see and again as the point I made to Anthony I don't think you have apotheos I think we are already seeing Bank of Japan announced an interest rate ceiling on the long bond the last time we had seen a similar policy in the US for instance was during World War II it basically sets the stage for the Treasury to be able to issue borrow with the guarantee that the central bank will keep rates at that ceiling so to make a long story short I think since the global financial crisis we have seen central banks moving to do more fiscal policy and I think that if you go back to the pre-crisis era the idea of even discussing raising inflation targets from two to four say which is at play would have seen somewhat jarring to most central bankers I think the mentality has shifted this is not saying that central banks have become a political branch of the government but it is saying that fiscal considerations are having a much greater role in central bank policy actions since the global financial crisis it's nothing to do with independence because if central banks over the past post-crisis have gone to the limit of their mandate and beyond by reaching out into many areas that are close to or equivalent to fiscal policy basically move in central banks back to the core of their remit in my view is nothing to do with discussing independence of the central bank the natural division of labor between the central bank that focuses on its core remit and the broader political responsibilities for fiscal and structural that governments have so I think we're mixing up two things here I think central bankings will start to refocus at their core remit because we're ten years after the crisis and a lot of the problems have been addressed so I think we should mix these two things up reminding central banks that they have a core remit and that they do fiscal policies is in my view completely consistent with the usual division of labor in politics if central banks have moved to politics political leaders can remind them that their mandate is actually much narrow Well first of all we have to say that global monetary policy during the financial crisis was generally a success so we could avoid the second financial crisis or depression of the 1930s so it was a big success so a problem is that expectations regarding monetary policy are too big so many people expect everything which is not deliverable by monetary policy and there actually I agree the mandate of monetary policy has to be remain tight and that is very important but independence, central bank independence remain a core issue here and those countries who will lose central bank independence will suffer over time so I guess deeply convinced, I fully agree with Anthony that over the long run it's very important to maintain central bank independence let me add a very very simple fact after global financial crisis is the following that US daughter despite being the currency causing financial crisis is now more important than 80 years ago because Eurozone is weakened Euro is weakened and the Swiss franc wonderful currency is too small RMB is under challenge Japanese yen is depreciating so the US daughter is today more international more important than 80 years ago so this is a simple point I hope everybody especially President-elect Trump should know, should understand and US Fed want to switch these with Carmen come closer to me and US Fed is not taking this into account that's my conviction they are still talking about inflation in the US talking about preventing inflation they forget that there's a strong strong feedback from their monetary policy on other countries' economies and then feeding back into the US economy so here I'm not arguing that the central bank should be dependent upon somebody rather the central bank in the US, the US Fed should be more international should take more account of its international impact Anthony I got to say in the current political environment in the US where there is a lot of hostility towards even to trade the idea that the Fed should become, should make as part of its explicit policy objectives global financial stability perfectly strong economic argument I think politically would be hard to sell that but Anthony what do you think? Well rather than make it that specific let's step back for a second and let me give you a narrative that I've seen and then I'll ask a question to solve the situation you had a global crisis we can describe why but we all sort of know why you then were forced into massive monetary intervention we did that very successfully but the byproduct of that is when you have an asset reflation trade going on maybe it's one, two, three percent of the world's population owns the assets and so let's say I started out worth A, B and C the crisis came now I'm worth A and B we massively intervene we create this reflation trade I'm now worth A, B, C and possibly little D however the 97 percent of the rest of the global citizenry didn't experience the uplift in fact if you look in the United States over the last 11 years real wages despite the prints of good wage growth in the last two quarters real wages are down about 9.4 percent so now here's the narrative the global elites forgive me for saying it that way fortunately all of us here are among that and it's a pejorative I guess now but if you look at that not here, not here I think I think it's the last place where it's still considered not here but maybe it should be here maybe the message should be self-reflective and we should sit down and say okay here's what happened we all got through the crisis we're all worth at least as much or a little more but the common person has really struggled and now what do we have in terms of policy well we have monetary policy we have fiscal policy we may have possible private enterprise intervention as well that we need to think about public versus private but there's a riddle on the table that all of us have to solve for if we want to make the world more successful if we want to create the aspirational working class that I personally grew up in you know where my dad was an hourly worker and he said hey you know what it's totally fine I'll work the 16 hours because one of my children is going to rise through the classes I don't feel that anymore when I go to Donald Trump rallies you don't feel that there's a sense of desperation after the Brexit I told you this at breakfast after the Brexit I went to an event it was all Harvard law school people of the dean of the school I went to Harvard law school the dean of the school said my god I just got back from Europe everyone in Europe said that the Brexit wouldn't happen I raised my hand I said how many of you have been to a Bernie Sanders or a Donald Trump rally and the answer is none and so what happens is we start to insulate ourselves into our thought process based on our life experience and so here's the riddle on the table the top 3% of the world they push back to where they were on their balance sheets 2007 the remaining players in the world the remaining people they're struggling if you don't understand that you got to go out into the world you got to go into the prairie lands of the United States or perhaps places in Great Britain or places in Europe you know the places listen to the people we have to as a collective group of people come up with the right policies maybe it's infrastructure maybe it's a better Federal Reserve guidance maybe it's more simplified tax policies that can create more middle-class wages I don't know what it is Jerry but what I am telling you is that's how we see the problem and if we don't come in and fix it in four years you're not going to be talking about this you'll be talking about some left leaning charismatic that could be very damaging to the world I spent my whole career trying to become a global elite I've worked for 50 years to be a global elite now I'm told it's not a good thing to be but okay you know I actually think it's a great thing but the problem is we like picking on each other we like tearing ourselves I do think that you make some very good points Anthony and there was a misunderstanding of the sentiment among average workers in England and in the United States and the question now people are saying well is it going to be the same in France is it going to be the same in Germany and if in Germany and France you have the same kind of revolutionary change of the ballot what will be the impact for the global economy nobody really knows I think for the new administration they have a lot of things on their plate one of the most important things is to take care of the the physical policy that they talked about which is the tax cuts and so forth getting them through the Congress will be very very complicated because tax legislation is the most complicated legislation you can possibly have and unfortunately presidents don't really write tax legislation they tend to give broad principles and they can lobby but it's the Ways and Means Committee and the Senate Finance Committee I think the world would like to know what it's going to be we won't really know what it's going to be in the next couple of months but I think one of the issues we have to face the United States is how much we can borrow we have 20 trillion dollars of debt now depending on you call it external internal debt 20 trillion can we afford to borrow another one and a half and two trillion dollars every year the next couple years to afford this financial and physical stimulus I'm not sure that we can if we if we do borrow it it's going to really have an inflationary level so strengthen the dollar ironically in a short term and the dollar strengthening in the short term is going to be the most serious I think financial problem the world will have to deal with over the next year or so yeah actually common first and then actually I'd like to sort of marry two of the points that have been raised one is does the Fed take into account global considerations and the other is what are the effects of a strengthening dollar I think one has to separate but it's done in moments of crises I think the Fed in 2008-2009 acted as a global central bank a lender of last resort I on a much smaller scale if you go back to August 1998 and LTCM and the Russian default it did it did so on a more modest scale now the question of is it raising rates too slow or too fast and what that does I would remind you that a couple of years ago the complaint from emerging markets was that US rates being so low for so long was promoting large capital inflows and sustained currency appreciation at the time what we're seeing is a reversal of that but I very much concur with David that there is a strong reason to worry that dollar appreciation can lead to a higher incidence of defaults public and private in the emerging markets that are highly leveraged in dollar debt and in some sense we're seeing in scattered places a replay of this in Indonesia the collapse of the Rupiah during 1997 was a lot of the corporates were trying to pre-pay their dollar debts and that generated of course a collapse in the Rupiah and appreciation in the dollar and this is some of the chaotic moments so what does a Fed do I don't think we should limit ourselves in this discussion to the Fed I think that one of the things I recently wrote about was are we going to see some sort of intervention we haven't seen U.S. intervene in the foreign exchange markets since the Clinton administration and intervene to try to limit an appreciation since the Plaza Accord I do want to come to Axel quickly but just Anthony that question is that is an important one for you so you could see everybody here seems to expect continuing appreciation of the dollar in the U.S. trade balance and a significant appreciation of the dollar is going to push things in exactly the opposite direction what's the response is there intervention to depress the dollar is there does this create more political tension between the U.S. and China and the U.S. and Mexico and other countries you're going to have a market environment which could be working directly against the policy of the new administration and so now I guess I'm supposed to say what exactly is going to happen but the truth of the matter is none of us really know exactly what's going to happen what I think will most likely happen is that we'll implement an infrastructure policy plan that will be fairly dynamic I think what will happen I think David will get this roughly right that we'll have a tax plan that's a lot more simple there'll be a regulatory and executive order rollback pretty quickly you've already seen that in the consumer confidence and so you may not like the answer but if you get better than expected growth in the United States even if the dollar is going up we saw in the 1980s that you could have a strong dollar and fairly robust growth in the U.S. that would lift the global economy just want to make one other point two years ago I said here that deflation was the death star you know the Darth Vader death star outside the world's economy it's now the bigger death star you know the one that they just printed why is deflation so bad? see people in the room know it but like my mom and dad they have no idea my mom goes to the store the price of the goods are less why is that bad Anthony? it's bad because of the way we carry debt in the society if that dollar continues to go up and you have a deflationary specter over the world you will not be able to carry the debt that we have in the society that will lead to a worse global crisis we get better than expected growth a simpler tax code we get an invigorated middle class and working class where purchasing power goes up the virtuous circle of consumption takes place and growth will solve many of the problems that are on the table but if we don't start focusing on growth and policies that dictate growth you're going to be in a problem very quick then I want to open it up to questions we're talking the dollar appreciation a bit too much in isolation we've seen three US dollar bull markets over the last four or five decades the first two lasted roughly 79 months and the dollar appreciated in real trade-weighted terms between 35 and 45 percent the current dollar appreciation in real terms has been already lasting 65 months it's not a new phenomenon it's been ongoing and the dollar has in real terms appreciated almost 30 percent if you go by history which doesn't repeat rhymes there is an inherent correction that will happen as the dollar continues to strengthen I think the current dollar run probably has another 10 to 15 months to go and it probably has another 10 percent to play out but I think there's going to be a correction so I think what will happen globally is it's more likely that the Fed will stop raising rates and actually will have to level off rates because what matters in global markets and for the exchange rate is not the level of rates but the differential to the rest of the world Swiss monetary policy is designed from that I hope we're not going back to a world of intervention because I think if we see the Washington Consensus on using currency intervention to basically move prices in currency markets we're getting back to a very bad motors of international operation but for interest rate differentials to play out when Asia and Europe is at negative rates I think if the Fed goes to one and a half maybe towards 2 percent that's already going to do a lot in terms of putting further pressure on the dollar so they're unlikely to be in a straight line tightening they're more likely to at some point stop raising rates and face the fact that the US recovery is already in a late cycle it's lasted already for five six years and so I think global divergence in monetary policy will not continue and it's most likely coming to an end by the Fed stopping to move ahead and moving sort of seen the end of the tightening cycle much sooner and at much lower rates than we historically have seen and that builds in some vulnerability for the next downturn because we will not have the room to maneuver with interest rates and monetary policy to the same degree that we had as if we move back to full normal so it's going to be a low rate normal that we're going to and much more vulnerability if the next crisis hit because we don't have the full arsenals of tools to react. Kind of very quickly I fully agree there will be a correction cycle maybe one half years but by worry my biggest worry is coming six months in the coming six months there will be two shocks. Number one shock will be coming in 72 hours the inauguration will send a message to the rest of the world that the US economy will be stimulated people don't understand the specific points as David was saying the tax cut takes a long time people outside the US all believe the tax cut will be coming to the US economy very soon so that's one stimulus that's one one big big confidence shock in the US economy second one will be US fat hike the two things combined will cause sharp appreciation among many currencies and then will cause the crisis David was talking about so the coming six months I think would be most tricky one thing you didn't mention and it's not camping on the short term but if the RMB could be made a reserve currency at some point and the Chinese government were to move in that direction ultimately in three four years from now when it's possible I think that would solve some of the problems we have today. That's a long line issue. It is a longer term issue. Let's questions we've got some time for some questions yes sir here please you have a microphone just coming behind you. It works. First I think I agree with you know most panelists view that interest rate normalization will be a very gradual process and it will not happen simultaneously I think that both Japan and Europe will be lagging behind obviously the dollar appreciation has had already an important impact on emerging markets and since you mentioned Mexico in several locations let me say something about the situation with the Mexican currency the pencil depreciated about 25% over the past two and a half three years more or less a little bit more than most of the emerging markets index it has depreciated about 20% since Mr. Trump got elected and it is pretty paradoxical that the U.S. you know do a new administration would like to negotiate an agreement a trade agreement and so on and so forth a new relationship with Mexico while at the same time this Mexico bashing and the direct interventions regarding the firms intentions to establish themselves in Mexico to export to Mexico is taking a toll on the Mexican peso so I think there is an inherent contradiction here and we'll see what puts on in the next few months but what's happening in the case of Mexico is that if this continues and it's not the threat that is causing the depreciation of the peso it's not that was maybe before this Trump phenomenon that's happening if this continues is that we're going to pay the wave for the resurgence of populism and nationalism in Mexico that was more of an observation I don't know if anybody wants to respond but we can come to another question yes gentlemen or comment thank you very much my name is Kumagai and I'm a chief economist at the Daiba Institute of Research in Japan Bank of Japan several times and I think the Bank of Japan has been the front-runner of aggressive monetary policies in the global market and my simple question is what have you learned from the monetary policy of Bank of Japan and what have you not learned from the Bank of Japan anybody want to ask Thomas could I maybe ask you if you've got observations on the Bank of Japan which has seen and says has been particularly aggressive well I cannot really comment on the policy of my colleagues but there's really one thing we should distinguish and I'm responding to your point here between cyclical aspects and structural aspects and monetary policy can only have an impact on the cyclical situation but the success of your policy in the States will basically be in the case you have a big impact on the structure and whether potential growth will be increased whether you boost the short-term fiscal policy in an already full employment economy that will not make a big difference but if tax policy and all the other structural policy infrastructure will increase the potential growth rate that could make a big difference and that is still what we lack maybe also in Japan and also in Europe where we should increase through policy the potential growth rates and that will help many people. Excellent. Briefly. Maybe one sentence on the Bank of Japan you have to look at the Bank of Japan within the context of economics and they're the first arrow but there's a second insert which is fiscal and structural it's symptomatic that the structural policy is the third arrow it flies the longest it takes the longest to implement and therefore should be the first I think central banks have been overly relied on in the case of Japan in the case of Europe and everywhere and fiscal and structural didn't really become part of the early game I'm very glad that at least in the U.S. we're starting to see those preferences recalibrated where fiscal and structural will play a bigger role and therefore allows monetary policy to retreat more to its core remit. I think in the immediate period after the crisis maybe such an extreme consolation was needed ten years after the crisis we're definitely heading towards a situation where our economies have strengthened have bottomed out. This year growth could for the first time in the last five years surprise to the upside to the downside and that's where we need a different policy mix going forward and it has to be basically has to be put on the table by the most secretly advanced economy and that is the U.S. Just quickly does it feel like it's ten years after the crisis? It feels a lot longer. David David did I have any comments? The best of intentions don't work out that monetary policy as Axel said isn't enough. Japan has done everything that classically you would say should be done to inflate an economy that spur growth and it just hasn't worked because of structural problems demographic issues that are just endemic to the Japanese economy so the Japanese Central Bank has done almost everything you conceivably could do and it just hasn't worked and therefore there's a lesson that you shouldn't just rely on monetary policy when you have structural problems. I have a simple way to explain the situation I think the key word is transmission the central bank of Japan is like powerful engine pumping money the wheels doesn't have the power the reason is because the transmission is missing the transmission is the commercial banks commercial banks are still behaving the old way getting the money but not lending out so transmission that's the key word Over there Glen I think I see Glen Hutchins So if you imagine a world in which we're not measuring productivity correctly and in which productivity is in fact higher which I think means inflation is lower which would mean that real interest rates in real growth are in fact higher and you think about how that might better explain the world that we live in the day than what our statistics are showing us how would that influence your views on monetary policy? Anybody want to take that? Axel First would you accept that we're mismeasuring productivity and that probably productivity is higher and therefore inflation is lower? It's a big discussion I think we had that discussion a couple of months ago in the US so I think it's too early to tell we definitely know there are problems in measuring productivity but I don't think the issue is here in the 10 years that what was as the forefront of monetary policy was dealing with something that is a measurement error what was at the forefront was a deeply rooted crisis in the core of our financial system in the United States in the most sophisticated financial institutions and we've progressed from that very bad situation 10 years ago but what really matters on the way forward and I don't think that there is an issue that is really at question is we need to bring productivity growth back to our economies and fiscal policy and lower interest rate can help bring about more entrepreneurial spirit and I think also focusing on structural and infrastructure which is very clearly known that infrastructure investments do have spillovers into private investments and therefore can be a key facilitator for boosting investments I think that is something that in my view is also beyond doubt so I think we need to refocus on the supply side of the economies we spend the last decade focusing on demand side only we know the world in the economy it always has two sides supply and demand I think we've had over reliance on demand management and I don't think we had sufficient focus on the supply side and we're about to see that change with more conservative policies and I welcome that Carmen the implication of Glenn's question is that monetary policy is already much more restrictive than we think and maybe about to get even more we could have the Fed pushes short term rates to one and a half to points in nominal terms that could be three four percentage point three four percentage point real interest rates is what's your view on that I think the interpretation there is well real rates could be a lot higher but real rates could be a lot higher if one really believes that inflation is going to remain subdued for the foreseeable future I would add a note of caution that extrapolating is dangerous since 2008 the advanced economies have been fighting very deflationary headwinds because of the financial crisis and the large degree of of deleveraging that has been necessary I would note that if you go back to the 1979 turning point in inflation in the advanced economies the projections at the time was that stagnation would be the norm so I am somewhat skeptical whether we are not perhaps approaching a turning point where the deflationary challenges that we've seen are no longer with us in the next few years and if that's the case monetary policy may not be as tight let me we are running out of time so what I want to do is I'm enjoined to get a very brief summation take away from each of you so David you were about to why don't I start with you David deflation is a concern please bring me into the Trump administration because I got inflation to 19% when I worked in the Carter White House and we haven't been able to get inflation at high again since then so maybe I could come back and get inflation up to 3 or 4% which actually would be pretty good to be serious I think that what we've had is a very good discussion about the complications of monetary policy and we can't depend completely on monetary policy to solve all of society's ills and we're going to have to do more in fiscal policy and structural changes in the way the economy works before we can really think the economy is going to get better we can't rely only on central bankers to solve all of our problems as talented as they are we just can't rely on them to solve all of our problems and we have relied on them a little bit too much in the last couple years hold on Anthony if I may my main point is to be careful of the international feedback the US dollar is more important than you think in the US on the global economy and the global economy would have more impact on the US economy than you think so that I fully understand the sentiments in Michigan Wisconsin in Pennsylvania however explain to them once president elect become president be careful of international coordination pay attention to international coordination especially in monetary policy common I would basically like to highlight another dimension that David didn't touch upon which was we've talked about relying too much on monetary policy and I think that we all share that view we mentioned fiscal policy but there's one area that we haven't touched on and I think this bedevils Japan, Europe and the US which is how do you restructure debt public and private to enhance the transmission mechanism of monetary policy to be able to create new credit and so when we revisit what the role of fiscal is and the role of monetary I think debt restructuring and the restructuring of balance sheets of banks and so on still are very much should be part of that agenda Anthony just briefly I think that if you're reading the news in six months and we're doing a good job the principal focus has been on the American worker and middle class families ultimately that's going to be the engine of growth and we're describing Thomas Thomas well I'm convinced that you have to concentrate on structural reforms around the world from Switzerland to Europe to the United States and we should focus monetary policy more to the medium term price stability again Axel I think the big call for probably the rest of the decade is going to be political uncertainties when coming out of a crisis usually ten years after people are with the situation stabilized looking and who's been the winners and who's been the losers from the last crisis and whose most impact political uncertainties related to the way forward is probably the biggest challenge we're seeing a lot of rise of populism we're seeing global integration retreat we're seeing European disintegration rather than integration so the big challenges that we have is whilst policy was the savior when we fell into the abyss in 2007-2008 policy seems to become the disturbance of many of the potential economic developments that lie ahead so I think policy has to firmly take it back seat and we need markets we need corporates we need long term views to come to the fore I'm a bit concerned that policy continues to be the main driver of markets and that probably medium to long term is not going to be a good development Ladies and gentlemen it's been a fascinating and timely discussion from this corner of the global elite so thank you very much indeed for joining us thank you all and you can read about all of these issues in the Wall Street Journal please do