On Jan. 15, Christine Lagarde, managing director of the International Monetary Fund (IMF), addressed the National Press Club (NPC) on positive trends in the U.S. and global economies.
She was introduced by NPC President Angela Greiling Keane as the first woman Managing Director and the first woman to serve as Finance Minister of a G-7 country. She was also a member of France's synchronized swimming team and had early ties to Washington as a graduate of Holton Arms prep school and as a former staffer for then Rep. William Cohen, R-Maine, where she helped him correspond with his French-speaking constituents during the Watergate proceedings.
A lawyer by profession, Lagarde practiced law at Baker and McKenzie, where she served as the first female chairman. During meetings on the EU crisis, she plied her colleagues with an American treat — M&Ms.
It is noteworthy that Lagarde handled the issue of the pending request by the IMF for ratification by the United States of its commitment in 2010 to participate in another round of funding in a very low-key way. She knew it would be raised prominently during the Q&A anyway.
She urged the United States to act on the funding and on providing more say in IMF affairs to developing countries, including China. But rather than complain that the IMF provisions were not included in the recent appropriations agreement, she expressed confidence that time is on the side of the IMF on this, and the United States will eventually act.
After noting such milestones as the 100th anniversary of World War I, the 70th anniversary of the Bretton Woods conference that established the IMF, the 25th anniversary of the fall of the Berlin Wall and the seventh year of the financial crisis, Lagarde saw a bright horizon and ventured that seven strong years could follow the seven lean ones. However, she cautioned that this will not happen randomly, without the right policy mix and international coordination.
Lagarde stressed that she would speak in general terms ahead of the release of specific numbers. While she sees the growth trend as positive in the advanced economies, it is stuck below 4 percent, and she finds it "too low, too fragmented and too uneven. Her speech showed consistent alignment with monetary policy doves, and she suggested that more jobs could be created "without unleashing the inflation genie," but she acknowledged that there are downside risks.
Of greater concern to Lagarde is what she called the "ogre" of deflation, but this threat has been allayed by growth in the emerging countries, which have accounted for three quarters of world growth. However, these countries could now be entering the slowdown phase of the business cycle.
Her views on the outlook for the tapering of the Federal Reserve's quantitative easing policy are more sanguine than those of many observers who took the reaction of the financial markets last May and June as a warning of potential turmoil. For her, that same reaction was a successful "dress rehearsal" for the tapering that is now underway, but she is wary of volatility in financial markets and international capital flows.
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