The ECB Sintra Forum's Policy Panel Talks Inflation, Rate Cuts
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Right now we're going to go to Sintra in Portugal where the world's top central bankers are gathering together for a discussion with Bloomberg's Francine Lacroix. Let's listen in. Today, this morning, consumer prices rising some 2% from a year ago, up from May's 1.9%. But then the tariffs still loom large. So how do you see that developing?

Well, first of all, I would note that we are at 2%. And this is the latest reading. This is also the target that we have had, and this is the projection that our staff is indicating for the medium term, which is exactly what we had anticipated. So I'm not saying mission accomplished, but I say target reached. Okay? And I think we should start by recognizing that.

We faced massive amount of shocks, compounded shocks occasionally, and we are now through that disinflationary process that we have conducted over the last two years. And yes, we are facing a lot of uncertainty. Yes, we are facing the risk of fragmentation increasing. And yes, we are facing geopolitical developments that are worrying generally, but that also are causing

two side risk to inflation. So we have to continue to be extremely vigilant, we have to continue to be committed to delivering on our target, and I think we are at this point in time in a very good position to do that. So we are well equipped to navigate the tormented waters that we should anticipate.

Chair Powell, tariffs are not yet showing up in inflation. Is this forcing you or your staff to actually rethink what the models say about how much the tariffs will ultimately through some of the final prices? Thank you, Francine. And Christine, thank you to you and your colleagues for putting on another great conference here today. It's been a pleasure.

I guess I would start, if I may, by saying that the U.S. economy is in a pretty good position. Inflation has come down close to 2%. We're at 2.3 headline, 2.7 core. The unemployment rate is at 4.2%, so we're healthy overall. If you look, ignore the tariffs for a second,

Inflation is behaving pretty much exactly as we have expected and hope that it would. We haven't seen effects much yet from tariffs, and we didn't expect to by now. We've always said that the timing, amount, and persistence of the inflation would be highly uncertain, and it's certainly improved that. So we're watching. We expect to see over the summer some readings, higher readings.

But we're prepared to learn that it can be higher or lower or later or sooner than we'd expected. But, Chair, would the Fed have cut more by now if it weren't for the tariffs? So I do think that's right. In effect, we went on hold when we saw the size of the tariffs and where essentially all inflation forecasts for the United States went up materially as a consequence of the tariffs. So

We didn't overreact, in fact we didn't react at all. We're simply taking some time. As long as the US economy is in solid shape, we think the prudent thing to do is to wait and learn more and see what those effects might be. And again, they haven't really shown up. And so for now we're waiting.

Governor, South Korea's economy is of course high-linked reliant on trade. Putting aside the deals that each government could do, can strike with the Trump administration, what can central banks in your position do to shield economies from the impact of trade tariffs? Actually,

about the tariffs impact on inflation. Our current inflation is well stabilized around 2% and we believe tariff tends to be deflationary rather than inflationary for three reasons. One is Korea is not likely to use retaliatory tariff. Second, we import 22% of our import from China and recently export price of China

has been falling at 5% a year for several years and we believe that it will continue to so. And at this moment our growth rate is 0.8% which is well below the potential growth rate. So aggregate demand pressure is much lower. So our problem is not the inflation itself but the growth impact of tariff. So what does that mean you'll do going forward?

Actually, we have been in an easing cycle and we cut our interest rate 100 BP from last October and we will continue to be in an easing cycle given our growth rate. But recently financial stability risk has been rising, especially housing price in metropolitan area is increasing very fast. So we are keeping eye on this financial stability risk in deciding the pace and the timing of the further cuts.

Governor Bailey, you've taken the view that the latest rise in inflation in the UK will be transitory. Why are you so confident that inflation will fall back? Actually, you may have detected I've tried to avoid using the transitory word because oddly enough it has a bit of a history. But to be serious,

Obviously, any increase in inflation is an increase in inflation, sorry to state the obvious. The reasons it's gone up is really entirely due to so-called administered prices. Now, as I say, that's an increase in prices, don't get me wrong. But it's not telling us much or anything about the context of the economy. In other words, it's not telling us anything really much about the balance of supply and demand in the economy.

So I think the key judgment for us is are we going to get second round effects from this pickup? And of course, it's nothing like the pickup of a few years ago, just to be clear. And my judgment is at the moment is that the context is different, that we do see evidence. I see some signs of softening in the economy. I see signs of softening in the labor market.

We are going to have to see those come through though, I mean come through into prices. I think we've still got to see the evidence and prices. But that background context allows certainly me to say, look, I think the direction of interest rates continues to be downwards. When you look at all the uncertainty, again, it's a bold call given what happened to oil prices and trade negotiations.

It is. I mean, I would say two things on that. One, I think, as others have said, it's probably, as Jay was saying, I think it's a bit too soon, I think, really, to see the price effects coming through from the trade and tariffs action. We've made a point of saying also, I think as Christine was saying, that these are two-sided. They could go either way. It could be weaker demand. We could see some supply chain disruption. And the second thing, of course, is that

Some of these effects, if you take the oil price story, it's gone up, it's come down, all since our last meeting, effectively. We always reach for the lexicon at this point. We've added unpredictability to uncertainty. I was slightly amused at the introductory film this morning with Christine saying all these words, because it's true.

Because not only are we getting uncertainty in the sense, you know, the range of outcomes, but unpredictable in the sense that if you get things like, you know, the tariff action, history really isn't a particularly good guide to that actually. You can't really draw much from the past on that. Now, Governor Ueda, you're in a slightly different situation, right? Japan's CPI has stayed above 2% for three years now. What do you see as the fundamental changes in your economy that make inflation more persistent?

So let me say, to put it simply, as you say, headline inflation has been above 2% for almost three years, while what we call underlying inflation is still somewhat below 2%. That's the situation we are in. But if I could decompose it further, there's probably about three components to it.

First, there's underlying inflation dictated by wage price dynamics whereby increases in prices affect wages, which further affect prices, helped by resilient domestic demand. This component has been going up slowly, but as I said, it's still somewhat below 2%.

Then there's going to be perhaps a second component which will be the expected negative effects of possible tariffs on the economy and on prices. We are expecting this to take place but we haven't seen that yet. There's a third component which is domestic supply shock generated by increases in food prices.

Actually, this component accounts for about 50% of the headline inflation we've got at the moment. So netting these three, we think the first component and the second component will produce a slow increase in underlying inflation toward 2% by end '26 or '27. The third component, food inflation, is going to subside toward the year end.

But we will be closely monitoring interplays between these three forces. Governor, how do you view trade concerns the day after President Trump threatened Japan with more tariffs? Well, it's being negotiated by our minister in charge, so I'm trying to avoid making any specific comments on this.

- Let me just ask you, what will be the key trigger for Japan for deciding further right hikes? - Okay, as I said, it will depend on the relative strength of the three invasion dynamics I was describing. And we need some more information to determine that.

President Lagarde, when you look at rate cuts, I mean, are we going to – where do you see actually the ECB going? You're in a pretty comfortable position right now out of all the central banks. Data will tell. So –

I think we are determined to continue to be data dependent, to decide meeting by meeting, and to not commit to any particular rate path. That's the doxa. And we're very lucky because we have just completed our strategy assessment.

which really gives us a good framework and good strategy lines within which to operate. But those three aspects that I have mentioned, data dependent, meeting by meeting, no commitment to any particular rate path, are constant in that ongoing strategy based on what we have concluded actually yesterday. Jay Powell.

So from our standpoint, as you will have seen, a solid majority of FOMC participants do expect that it will become appropriate later this year to begin to reduce rates again.

And that will depend though, as Christine just mentioned, on the incoming data. We'll be monitoring particularly what does show up in terms of inflation or what does not show up. And also carefully watching the labor market. We watch very carefully for signs of unexpected weakness

We see a gradual cooling, but we don't really see that yet. So those are the things we'll be watching. But as I mentioned, a majority of us do feel that will be appropriate in the remaining four meetings of the year to begin to reduce rates again. Madame Lagarde, the euro has also surged about 12% against the dollar so far this year. Are you concerned that its strength runs counter to your efforts to also loosen financial conditions? You know, I'm not going to comment on the exchange rate.

We take it into account for purposes of our projections. Obviously, it has an impact, but it's a reflection of the market conditions and assessment. It's also a reflection of the strength of our economy. But there has been a clear appreciation relative to the dollar, and depending on how you look at it, it's either depreciation of the dollar or an appreciation of the euros. And there might be a bit of both in that particular case. We're also looking at the movement, the flow of

of capitals and the attractiveness of Euro-denominated assets, which is also an interesting phenomena that we've observed lately. Chair Palmin, is it fair to say, I know nothing is guaranteed, number one, we all know this, barring a real surprise, is July just too soon to seriously even consider a rate cut? Yeah, I really can't say. It's going to depend on the data, and we are going meeting by meeting. I mentioned...

how I'm thinking about that, but I wouldn't take any meeting off the table or put it directly on the table. It's going to depend on how the data evolve. Governor, what's the biggest risk stemming from protectionist trade policy actually for the global economy and for South Korea's? The biggest risk stemming from trades and protectionist measures? You know, Korea has quite an export-driven economy. So whatever the global fragmentation has a serious impact.

not only direct impacts through the US tariff, but also indirect impacts through China, Mexico, Canada. And we easily can, it really depends on what's gonna happen on July 9th. We are actually waiting for the result, but we don't know what's gonna happen. But for example, if the tariff goes back to 26% retaliated tariff that was announced in April 2nd,

and also with a lot of sectoral tariffs which affect our economy, aluminum, steel and cars, we can easily say that it has an impact larger than close to 1% in our GDP growth rate. And depending on how long it lasts, I think we have to adjust to the new supply chain so the impact will be larger. But I hope...

That scenario won't come. What is the most concern for the Bank of Korea? Is it installing South Korea exports, slowdown in global trade, or a downturn in the U.S. economy? It's all linked. It's all linked, right? So the global economy will slow down.

And one thing, I mentioned some negative sides only, but one positive side, I don't know if it's a positive or not, but Korean companies have been preparing for the supply diversification a long time ago before the US tariffs started too, because we have some issues with China, and then also Chinese industry has become very competitive

So we had to relocate our production site from China to elsewhere. So relatively speaking, we are well prepared. And second, still, good thing is that we have some strong industry, such as semiconductor, which benefit from the AI technology development. So I hope that we can manage it. But on the other hand, given just we look at the sheer size of the export dependence, we will be significantly affected.

Governor Bailey, do you think interest rates will be closer to 3 or 4 percent at the end of the easing cycle given all of the inflation and trade dynamics? That's a subtle way into the R-star question actually I would detect. So I'm fairly cautious about the whole discussion of the level of R-star and therefore sort of where rates are going to reach in the cycle.

There is huge uncertainty around it. What I think is important and what we spend our time looking at is how restrictive is policy both now and going forwards? And our staff do a huge amount of work on that front to judge the restrictiveness of policy in the current context.

and how restrictive it's going to be looking forwards if you project forward with the market curves. And the assessment we've got is that policy remains restrictive. It will continue to be restrictive, although the level of restrictiveness will come down over time, which is what I would expect.

And so I would expect that level of restrictiveness to come down to a point where it goes more neutral. But I think you have to judge that in context. Just to give you an example of that in the UK economy, the level of household and corporate debt in the UK economy is actually lower than we would have expected it to be.

but based on past experience. So again, that feeds through into just how restrictive policy is at a given interest rate. It's somewhat less restrictive probably than it would have been historically. Could I ask all of you actually thoughts on the neutral rates? Chair Powell. Thoughts on the neutral rate? So I think, you know, there are countless empirical and theoretical ways to derive it. At the end of the day,

I think I like to look at the economy and ask whether our policy stance is having the effects we expect and want on the economy. And to me, I would say we're somewhere probably modestly restrictive at this level. And by some formulations, we're more restrictive than that. But if you look at the economy, growth has been solid. The labor market is

It's solid and still at historically low levels of unemployment. It's not an economy that feels like it's suffering from very tight monetary policy, but I would say that policy is still restrictive. President Lagarde?

I would say that it's a nice concept, it's interesting, and many of the terribly talented and brilliant economists in this room actually are delighted with discussion about the neutral rate. But honestly, as we're getting closer to target and to where we should be, or are where we should be, and I don't want to pass judgment on that, I think that discussion becomes less relevant. I think what our staff at the ECB measures is...

leads us to believe that it is higher than where it was before the great financial crisis, but it's relatively low as well compared, for instance, with what the U.S. neutral rate is at the moment. But it's

In a way, it's a bit of an illusion to discuss that at the moment because the neutral rate is normally defined in a world where there is no shock, where you have perfect equilibrium. Now, are we in a world with no shocks at the moment? I don't think so. So it's nice to have as a concept, nice to elaborate on it, nice to do research on it, but to use it at the moment where we are as a guiding principle to where we should be, I don't think is particularly appropriate. Andrew Bailey?

Well, that sort of continues what I was saying earlier. Again, I don't use it as a sort of a guide to where policy should be, but I think this whole concept of restrictiveness...

is of course critical to our judgment because that's critical to the transmission mechanism of policy which we have to judge every time we meet. So that's a judgment that in a sense we renew every meeting we have. I think I'd rather agree with what Jay was just saying. I think in our case policy is restrictive at the moment. It's going to become less restrictive based on the curve that we've got in the market. That's what I would expect. We will judge it each time.

Governor Lee? Similar? I have nothing to add. How would you see it, Governor Ueda? Yes, so we also estimated something like the neutral rate a number of times. The range of estimates is very wide. But at least we think we can say that the current rate is below neutral. But other than that, I would refer to what

Jay said a year or two ago in a Jackson Hall conference, which was like, we are guided by our stuff, but under cloudy sky.

President Lagarde, can you talk to us about scenario and why this is, you know, because of the shocks and actually the changes that are going very fast, why scenarios make more sense as a template of the economy? Oh, okay. So this is a topic that we have largely debated as part of the strategy assessment that we conducted in the last year. And I think, you know, in fairness,

which is the essential projection on which we work and we determine our monetary policy stance holds and is decisive in our consideration. But at the same time,

Our staff has, I wouldn't say forever, but as long as I know myself, has always conducted scenario analysis, sensitivity analysis in order to arrive at the most solid baseline. It is probably the case that we will do more of it, more systematically, that we might publish more often than we have. We have published, I think,

In the last few years, in four circumstances, we have published scenario analysis. The invasion of Ukraine was one, COVID was one, the oil crisis as well, and the tariff threats. So all those were exogenous factors that were sort of hitting our screens.

I think we might do more scenario analysis that will be looking at the longer term trends that will affect our economy and that will inform and strengthen our baseline, enhance it probably in its reliability. So that's what we are debating at the moment.

how this is built, what assumptions we make, what choices are decided in terms of publishing will be determined by the governing council in good intelligence with our staff. And Jay Powell on scenarios? So for many years we have used scenario analysis internally and I personally find it very useful. I think many of my colleagues do too. You have just

many different kinds of scenario. We have six or seven at every FOMC meeting. They're often the topic of discussion among governors and at the meeting. We have not taken a step of using them as a public communications device.

And that's a big difference. So that's one of the things we're going to be talking about this fall. We will wrap up the first part of our framework review, which is the consensus statement, our monetary policy framework, we expect to by the end of the summer. And then we're going to use the fall meetings to look at communications ideas. And that's one of the ones we'll look at. I will say it

It has a lot of appeal and a lot of questions. And so my expectation is we, you know, if we're going to do something in that area, it's going to be putting a toe in the water and not just throwing ourselves in, you know, over Niagara Falls on it. So I can imagine a situation where we would try that in a particular circumstance. But for us, we're just going to do the work and understand it as many other central banks are doing now.

Pay later and all major cards so you can focus on scaling up.

When it's time to get growing, there's one platform for all business. PayPal Open. Grow today at paypalopen.com. Loans subject to approval in available locations. In our case, we use the scenario analysis in our risk management section as a kind of representing the tail risk. But I have to read the ECB report, but if we have to move that section into the more forecasting section for public communication...

I wonder whether it's going to be easy to get some consensus which scenario we have to do it among our probably members in the monetary policy meeting. So because that scenario and those underlying assumptions may be much harder to communicate and to agree among the members. And also it's specific to us but how I can differentiate the previous approach of risk management section to the focusing that I have to think over what we have to do.

So I think two things I would add, and it's very much in the same spirit as colleagues. One, we introduced two scenarios in the May round and the May report.

For me, they were very useful. They were on either side. They weren't symmetric, by the way, but they were on either side. For me, they were very useful in terms of my decision-making because they helped me to answer the question, given the uncertainty, if I'm wrong in my judgment, how wrong am I going to be? Do I think I'm going to be? And what would be the consequences of that? What would we then have to do to deal with the moon? Is it manageable? And that was helpful.

And then I think the question coming back to what Jay was saying in terms of public communication, I mean, this is the big step, I think. And it is challenging. I'll tell you why, because I say this quite a lot. We make a lot of conditional statements. You might have detected this in all the interviews, the many interviews you do. And I'm not making a personal comment now, Francine, but a lot of those conditional comments get immediately translated as unconditional comments. It's sort of life.

We're quite careful, but-- No, no, it's not personal. This is the general point. And so the reason I say this is that if we-- and that's about the central case, by the way. So if we introduce scenarios, that's a message to us that you're going to have to do this very carefully in that world. Because to get the point across about there is always uncertainty, there is always risk, how you calibrate those and how you, as Jay was saying, how you communicate those publicly

is critical but pretty challenging, frankly, in that environment. Governor Iweata? Yes, we also carry out many simulation exercises about scenarios, but we have not, as far as I know, published them. We do discuss in our quality reports qualitatively what risks we have in mind. On top of that, I would say

in a very rough way without carrying out something like risk management approach to monetary policy making, which is probably a bit similar to what Christine was talking about yesterday. I can't come up with a good example, but so risk scenarios, thinking about tail risks sometimes do affect our monetary policy making.

Can I ask you all about the dollar, everyone's favorite subject? So when you tune out noise of the past few months, what has really changed about the dollar? Governor, are we really seeing some sort of paradigm shift in the status as a reserve currency that means historians will look back on 2025 as some sort of pivotal year? I don't think so, especially in case of Korea. Our Korean won has appreciated significantly in the last two months.

But I think it's mostly due to the very unique situation that we had. We had a very unexpected, unnecessary martial law declaration in last December. And after that, this political risk together with the slowdown on our economy really make Korean won depreciate much more than our fundamentals explained. So in some sense, the appreciation that we have observed in the last two months in some sense normalization.

of our currencies. And as for the kind of long-term shift of the dollar sentiment, we have discussions but looks like people are talking about it, but at this moment they keep the dollar assets while they're increasing the hedge ratios. So at this moment I think the lion's share of the impact, BIS report show this one, is impact is mostly moving from the unhatch to the hedge positions. So we have to see what will happen in the future.

Now, Governor Bailey. Well, I'd say two things. First of all, I think it's important to bear in mind what the definition of a reserve currency is.

and how it's evolved over many years. So, like John Ray, I don't see there being a sort of a major shift at the moment, not least because in this day and age, the definition of a reserve currency has as much to do with the supply of safe assets into the market that can be used for all the purposes of collateral and security that they are, as much as it is about a sort of pure exchange rate. So I think we're a long way off that change happening.

The second thing is going back to something Christine was saying earlier. I mean, when we look at financial conditions, which we do, of course, but I do think particularly, I mean, I always believe this, but I think it's even more relevant at the moment to unpack a financial conditions index. And the reason I say that is because we've seen a breakdown in the correlations of the components of a financial conditions index. So you look at sort of bond yields, you look at exchange rates, you look at equity risk premium, for instance.

Those correlations are not the ones that we've tended to see established over time. So you have to look at it much more carefully. There are stories to my mind about each of the components of that. So when I look at the exchange rate, I look at it very much on that basis. I don't think it's sensible to sort of pack it all up as we normally would and say it's all behaving normally because the correlations are not actually.

Governor Ueda, there's also many colleagues at central banks, I guess around the world, are building up gold reserves. Is that the only real alternative to the dollar? I think it's up to a certain extent what areas like Europe,

or China would do in terms of improving the efficiency or convenience of their currencies, like the kinds of things we were discussing this morning, capital markets integration. And these things will change the degree to which the role of the data may decline in the future. - Woman LaGuardia?

I don't know if 2025 will be a pivotal year. I would tend to think that, yes, it might very well be. But for a major change to occur will take a lot of time and will require a lot of effort. And I completely agree with the points made by Andrew about the

the dichotomy that we're seeing at the moment. And that might be an indication of the fact that investors are looking at options. This is what investors are saying. They ask questions, they seek alternatives.

and whether that translates into a general lack of confidence that will be further fueled by more uncertainty, more unpredictability, a bit of a jump in the unknown on several fronts, not just monetary policy, not just even the economics, but beyond that in terms of security at large, for instance, I think remains to be seen. It's not going to happen just like that overnight. It never did historically. There is no reason it should now, but there is clearly something that has

that has been broken and whether it is fixable or whether it is going to continue to be broken, I think the jury is out on that front. - Chair Powell, how do you think we'll look back on 2025? - So, you're asking me how we're gonna look back on 2025? - Yeah, how will historians look back on this year? Is it pivotal?

It's clearly an important year. There's a lot going on with trade and I think, I'm hopeful that we'll look back on it as a year where we successfully challenged some significant economic changes and our job is to make sure that that is the case. You get attacked by the president a lot on a personal basis. Does it make your job harder?

I'm very focused on just doing my job. I mean, there are things that matter are using our tools to achieve the goals that Congress has given us, maximum employment, price stability, financial stability, and that's what we focus on, 100%. Thank you.

Madame Lagarde, if you were in the same position as Chair Powell, would you do anything differently? I think I speak for myself, but I speak for all colleagues on the panel. I think we would do exactly the same thing as our colleague Jay Powell does. The same thing. Right? Yes. Governor Bailey, is the rest of the world decoupling from America but pulling tighter elsewhere? How do you see fragmentation happening?

Well, fragmentation were it to happen, in my view, is bad for activity in the world economy. No question about that. I mean, if we reduce the openness of the world economy, that will be bad for activity in the world economy. Now, I temper that in one respect because obviously we have learned a lot about the robustness of supply chains over the last five years.

and it is, of course, appropriate that there will be adjustments to that, but if we see a breakdown of the openness of the world economy sort of beyond that, beyond that sort of resilience that we do see as needed, then that's bad for activity, it's bad for the world economy, and that, I'm afraid, is something that

I think we need to be very clear. I've said a number of times, look, there are reasons why this is happening. It's not right to just go around saying this is all wrong, wrong, wrong. There are no reasons why this is happening. What I think is very important is that we get back to a governance of the world economy where we can address these issues in the appropriate multilateral fora.

and get to the question of what lies behind these issues, what's at the root of these issues, what exactly are the issues and what do we do about them. And I can't emphasize this enough that I think it's an obligation for all of us who are obviously very heavily involved in the governance of the world economy. We've all got very big responsibilities to say that is our duty.

to get back into the process of saying what caused this and what do we do about it and what do we deduce are the underlying issues and how do we address them because otherwise, you know, say fragmenting the world economy is a bad outcome. But what kind of fragmentation would it be? Is it again, you know, are you fearful that the world is splintering irrevocably or is it, is there a pool that's just moving?

Well, I think if it was a breakdown of trade in the world economy, obviously exactly how that would manifest itself would remain to be seen. But it would be running against...

a long period now where we've been building the resilience of trade in the world economy, we've been building openness. But as I said, I want to temper that by saying, look, there are issues. I don't think we should say there are no issues, this is all made up. There are issues and we need to address what they are and work them out. But we need to do that in the context of a commitment to a robust open world economy.

Governor Riaz, as the only governor here representing a non-reserve currency country, how concerned are you about fragmentation of the global financial system and the risk at the end of the day that the U.S. may be less willing to provide dollar liquidity in a future financial shock? No. I think I mentioned that we are quite vulnerable to the fragmentation of

But in reality, as a small country, it's a pity that we can raise our voice, but in reality we cannot change the course, so we have to probably take it as an environment and to adapt it. What matters is we talk about economic fragmentation, but for a country like us, the most serious issue is combined with security. And for that issue, let me stop here because I don't want to go further. But as for the dollar equity support,

as demonstrated during the global financial crisis and pandemic period,

the standing dollar swap lines with five international financial centers and the nine ad hoc temporary swap lines for the nine non-reserved currencies. That was crucial in restoring the stability in the global world. And if another global dollar shortage hits, I believe that the U.S. Fed will extend their swap lines again, which is very important.

But one other problem for country like us is we know that the US provide ad hoc sub lines as long as there is a global dollar shortage.

But the issue is what happens if there is our own problem and there is no global dollar shortage. Our understanding is that the Fed cannot extend the sub-lines in that case and we have to self-defense ourselves. That is why I think having an adequate sufficient level of reserves is very important. And recently thanks to the introduction of the FEMA refurbish facility by the Fed, actually these reserves become much more effective tool to defend ourselves.

Jay Powell on fragmentation.

Well, I guess I'll just agree with what Chang-Yong said, which is our point out that nothing has changed relative to our swap lines. We still have the same authorities and we're still prepared to use them in situations where it's within our legal authorities and where we think it makes sense. So we know we're aware that that's a big contribution that we can and do and will continue to make to global financial stability. Governor Ueda, how much do you think about fragmentation and the impact this could have on Japan?

See on the trade side I think a lot about what will happen to Asia even Asia excluding China. So this will depend on the relative tariff rates imposed on the region relative to China or relative to other countries, but there's

fairly strong intra-regional trade taking place during the last decade or two. Also there's new countries like India growing at very high speed. So I hope there's a resilient, sufficiently resilient domestic demand in the region to keep the energy of the region alive.

On the financial side, I don't have much to add to what other people have said, but it would be important to keep trying a multi-layered approach to things like swap lines. We have Chen Mai initiatives in Asia. Doing something similar or continuing to do something similar would be important.

Madame Laguerre, you've often spoken about the role that Europe could take in a fragmented world. How do you see that developing and in what kind of timeframe?

Well, I think Europe has witnessed in the last four years in particular, well, since 19-- sorry, 2022 in particular, the last three years, major challenges to its way of doing business, to the assumptions that it has made about security, about supply, about destination, whether you look at what the horrible Russian invasion of Ukraine has precipitated.

and how that has impaired the sentiment of security that we in Europe had and the sentiment that we could, you know, forever rely on the protection of others. That has been impaired significantly. When you look at the energy supply on which some of the European countries in particular, but most of us, have relied upon, namely access to reasonably cheap oil and gas supply from Russia, that has been impaired significantly and we had to find the resources to respond to that.

And whether you look at the business model of some countries where destination was inevitably China in the main, that has already been challenged as a result of the fragmentation that is not just a risk but which has happened. If you combine that with the technology risk that we could all be under,

either because of political determination or because of shortage of supply, whether it's on the front of microchips or rare earth. I think we are in a situation where many of the assumptions have been shaken up and where we collectively are on the cusp of, I hope, this is my hope, of better taking hold and control of our destiny by making significant structural efforts to, you know,

Be more independent, be more proactive, be more autonomous in all these different dimensions. Is it going to happen overnight yet again? No, because on some of those fronts, it takes time, it takes investment, it takes political determination, it takes momentum, and from a pure sort of

As president of the ECB, what we can do on the monetary front is to deliver on our mandate of providing price stability so that the fluidity of factors that is needed, both in terms of capital, in terms of labor, can rest assured that price stability will be within our remit under strict commitment to deliver on our target of 2% medium term.

But yes, I think it's a, historically, I believe that in a few years time, we will look at 25 of those latest three years as significant change in the way in which we conduct our life, our business, and develop Europe. And I hope for the better.

Chair Powell, last year in Cintra, you said that the U.S. cannot run these kind of deficits in good economic times for very long. And then you also said we'll have to do better sooner, something sooner or later, and sooner will be better than later. How's it going? Thank you.

So, of course, I probably preface that by saying that we don't comment on fiscal policy. That is the one thing that I have said and my predecessors have also said, and that is the U.S. federal fiscal path is not a sustainable one. The level of the debt is sustainable, but the path is not. And we need to address that sooner or later. Sooner is better than later. That's what I said last year. There's not a lot more I can say.

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