Bundesbank President Joachim Nagel Talks Risk of Recession
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Let's turn to the nation's capital where world leaders are gathering for the IMF and World Bank Spring Meeting. Standing by is Lisa from the IMF headquarters with a special guest. Good morning, Lisa. Good morning, John. I am here at the International Monetary Fund. It is a very different series of meetings. There aren't the same kinds of banners outside. It's a more subdued kind of feeling. And yet there are people collecting in Washington, D.C., for the first time since President Trump was inaugurated from all around the world.

world, including the president of the Bundesbank, Joachim Nagel, who joins us now. I'm so glad to see you. And I want to start with this question of how different are these IMF meetings? I guess this year, I guess this meeting is a very special one. I think the world economy

is in a very delicate situation and I will use this time here to learn a little bit more what we can do to make it better, to make the economy running, have a better understanding of what's going on and there are really a lot of uncertainties. One of the uncertainties is what's coming from the United States in particular when it comes to tariffs and how much that not only is a ramification for the US economy but also the global economy.

How are you thinking about tariffs and how much they could depress growth, say, in Germany?

I said a couple of months ago when it comes to tariffs, I was of the opinion that this will trigger a lot of problems. And now we see how the problems evolved over the last couple of weeks and months. And so we have to have a better understanding how we can find, let me say, a kind of a compromise, a kind of a level playing field that brings us closer together.

together because tariffs are not a good policy. This is for sure. If they stay, is there a sense that it gives you more room to cut rates? I think, first of all, I guess we have to take into account, as central bankers

also terrorists. What does that mean for Europe? I guess when we're talking about monetary policy in the euro system, we are on a good path. I guess we can come close to price stability over the course of this year and this is good news.

But there's a lot of uncertainty. And so we said last week, because of that, we have to be very cautious. We have to wait what might come, how this uncertainty might evolve over the next week. So we have this meeting-to-meeting approach. And this, I guess, is the best way to conduct monetary policy. Since the beginning of last year, since a peak rate of 4.5% at the ECB, you've cut rates seven times, a deposit rate of 2.25%. Is that neutral?

I will not speculate about neutral. I guess only in hindsight we really know where neutral maybe was or maybe is. So I guess I have to look at what the numbers, the figures are telling me and

There I see a lot of, let me say, good news when it comes to the inflation story. When we talk about economic growth, there's a lot of more uncertainty because tariffs are not good for economic growth. So the latest news that we got from the IMF here, we know that this is, for Europe, not good news. We are in a stagnating situation. So stagnation is the picture for this year, maybe recession for my country, for Germany. I cannot exclude a

slight, let me say, recession this year. So this is what we have to work on and monetary policy can only give us a good indication when it comes to a good direction when it comes to

when it comes to stable prices. The threat of tariffs has had an unexpected effect in markets of actually weakening the dollar pretty substantially and strengthening the euro, which on the margins could actually be a disinflationary force, especially if you're importing goods from overseas. That would lead to lower effective prices in euros. Does that give you some breathing room to actually cut rates

in response to potential weakness if that reduces some of the inflationary pressure? I guess it's much too early to really come to the final conclusion. What does this tariff scenario mean for both sides of the Atlantic? It seems to be, at least for the moment, that the price of that tariff

tariff decision has to be paid in the United States and not in Europe. It seems to be that prices might go up much more in the United States compared to the European Union. When it comes to economic growth, I think the picture is pretty much the same. It's also a track on the economic growth here in the United States, also in Europe.

But I will not speculate about monetary policy and what we will do next in our next meeting. How much are you watching what China is doing in terms of any trade barriers from the U.S., causing them to export more of their production, say, to Germany, and potentially lower prices with respect to an abundance of exports to the country?

China is an important player here, this is for sure. I guess it's not only for us, the Europeans, let me say, a very uncomfortable situation. I guess also for China, and yes, there might be a scenario that they are looking for new markets, additional markets. Europe was already being a market for Chinese products, but now maybe they

can maybe use Europe more compared to the past as an additional market. But as I alluded to already, I think it's a lot of speculation. It's a lot of

speculation, what does that mean, this tariff discussion. And it's too early to really assess what is the detail in really any aspect. It's much too early. Just to add to the confusion, if you really are looking for any kind of compass and want to just change everything, Germany has been known for the zero debt break and this idea of not raising the deficit at any capacity. That has changed. We have been talking extensively about

spending not only for defense, but also for a whole host of different investments. Does that create more inflationary pressure? Does that just improve the growth picture? How does that sort of influence some of your modeling? It is important to say that the role of Germany does not change or didn't change because the stabilic anchor of Germany is still there. So as I

I think we are living in a very complicated world. So it was necessary from a German perspective to do more regarding defense standing. It was also clear that we have to do much more when it comes to overcoming our infrastructure issues. So I guess this fiscal package is an important message to the world that Germany is doing its homework

And we will improve over time. The economy will do much better over the next years. And for me, as a central banker, this is at the end good news. But is it inflationary?

As far as I can oversee the current situation, it will not be inflationary because we are coming out of a situation, stagnation this year, maybe a kind of a recession. So it's not inflationary over the next course of the years. It's helpful to the economy, means more economic growth, and this is good news. One thing that's happened over the past couple of weeks in particular has been this fear of

of the United States losing its position as the currency of the world, as well as treasuries having a special status. And one thing that we've seen in the flow is a lot of money going into German boots as sort of the new haven. And we're hearing a lot about diversification away from the United States into German assets. Do you welcome that? Do you think that that would be positive? Well, I think that it is not good news that there's a lot of, let me say, doubt regarding the safe haven situation.

of US treasuries. I think this is not good news. And you're absolutely right, some of that money went to German bunds. But all in all, we need the US treasury market as a good, stable market that gives a lot of, let me say, certainty.

And we should overcome this turbulent situation and we should give back US Treasury this safe haven status because it is not helpful to all of us if there are some doubts, uncertainty around US, here about the US Treasury market. It wouldn't necessarily provide a support, the same kind of privilege of spending, I don't want to say recklessly, but with abundance in Germany, if Germany were to have that safe haven status? I think

Germany, and I alluded to that, is the stability anchor of Europe in Europe. German bunds is a perfect example for this. And this will not go away, but we need a good U.S. Treasury market. This is so important for the financial markets worldwide. Speaking of which, you're going to be meeting with Jerome Powell, the Fed chair, at these meetings this week. What are you going to ask him?

I think Jerome Paul, he's a great guy. I really admire him, what he did over his career.

in central banking. And so we would talk about the current situation, yes. So the current situation is potentially some sort of threat to central bank independence that was taken off the table to some degree when President Trump yesterday in response to reporters said that he has no intention of firing Fed Chair Jay Powell and that this was media speculation that was run amok, not necessarily any real indication that he was planning to remove him before his term was up early next year.

How concerned are you about threats to central bank independence? So what is important to me is that independence of central banks, this is the DNA of central banking, of good central banking. So we shouldn't, let me say, question to a certain extent that this is maybe something that we could see in danger. So independence of central bank is of utmost importance. And

Jay Powell, he's a great central banker. He did a marvelous good job. And I guess this is also seen here in the United States. Do you worry about some sort of financial instability if that continues to be called into question?

I will not speculate here, but in a scenario that you just mentioned, I cannot exclude such a scenario that there is then maybe a lot of turbulence coming to the markets if this is in question. And we should avoid that. That shouldn't come as a realistic scenario. We should avoid that. This is of such a danger for the world.

economy. And so I really hope that there's enough understanding how dangerous this could be. There's a question about what Europe can do to insulate itself and to draw itself closer, and that maybe some of the finance ministers and central banking chiefs can form something of a closer union to try to fortify themselves away from that type of volatility. Have you seen material steps toward that, to try to establish that type of stability

in the continent? Absolutely. I think Europe has, I guess now, a better understanding that we have to do our homework, becoming more resilient. We have to implement all what we discussed over the years. I just alluded to the capital market union, banking union, maybe a little bit more fiscal integration. So Europe has to stand together in these complicated times. But on

On top of that, also these meetings here, the IMF meeting, the World Bank meeting, these two, three days are so important to all of us to work on international cooperation. So the multilateralism of our work is so important in these days. So I will use these days here in Washington, D.C., to get a better understanding, to convince people

the partners here that corporation is key in these days. In the United States there seems to be a move away from financial debt or incurring more debt and there's this concern about the fiscal deficit in a pretty significant way. There is a goal to try to retrench some of the spending over the past few years. In Europe it seems like there is a move in the opposite direction. We talked about that with respect to Germany. That there is a greater degree of willingness to spend

Do you think that that is appropriate throughout the entirety of the continent, given the fact that there is this desire to try to rebuild and regenerate a whole host of industries? Let me disagree a little bit here, because I do not see that there is a momentum that we are going away from fiscal discipline. We have still a good understanding in Europe that we are currently in this complicated situation. So we have to do

much more compared to defense spending compared to the past. But if that period is history, then we have to come back to fiscal discipline. And this is understood in Europe, and we will go back to that fiscal discipline. Going forward, do you ever see a time when you can see zero rates again from the ECB or even negative?

Well, as I said, I will not speculate here. I think we do what we have to do in our next meeting and this is our mandate, this is our

huge responsibility and we did, I guess, pretty well over the past two years and I'm very optimistic when it comes to price stability that mission will be accomplished over the course of this year. So do you think that you are going to get back down to 2% over the course of this year? Absolutely, yeah. Okay, and you don't think that necessarily there has to be any material change whatsoever to policy to get there?

No, there is no autopilot. I think we are decent central bankers. So we will assess the data and then we will find maybe the right decisions. Joachim Nagel, thank you so much for being with us. Joachim Nagel, the president of the Bundesbank. And John, it is fascinating to see how much people are looking for a sense of...

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