International Monetary Fund (IMF) Managing Director Christine Lagarde addressed the National Press Club on Jan. 15 about positive trends in the U.S. and global economies.
After laying out her general outlook for moderate but uneven global growth and a sanguine but cautious view on the prospects for an orderly wind down of the of the Federal Reserve's quantitative easing (QE) policy, Lagarde lamented that since 2009, 95 percent of the income gains in the United States had accrued to the top 1 percent, and she warned that this is "not a recipe for stability and sustainability.
Her policy recommendation is that the authorities need to stay focused on implementing and coordinating the right mix of policies. She declared that the world as having "certainly avoided the worst-case scenario," and she credited central bankers with acting "above and beyond the call of duty in keeping interest rates low and the financial system functioning." (She did not venture to blame these authorities for touching off the boom/bust cycle by excessive monetary ease at the turn of this century.)
The tasks ahead are admittedly difficult, but in keeping with the fact that she was addressing journalists, Lagarde quoted Edward Morrow, saying, "Difficulty is the excuse that history never accepts." The big priority now, she said, is "to fortify the feeble global recovery and make it more sustainable."
She proceeded to survey that world, finding that the authorities, having put accommodative monetary policies in place, need "to slightly, gradually, undo what they have done, but not until growth is robust enough and firmly rooted. So the tapering will have to be very well timed." (Again, she is firmly aligned with monetary policy doves.)
She called on the United States to use the time provided by QE "to put in place the reforms needed to jumpstart job growth."
Addressing the financial system, Lagarde opined that the forthcoming asset quality and stress tests "will help if they are conducted evenhandedly and in a credible manner and well communicated."
In discussing emerging countries, she said, "Financial regulation needs to be strengthened and implemented, to better manage credit cycles." Further, there needs to be investment in infrastructure, to remove bottlenecks. (It seems this could apply as well to the United States.)
Lagarde concluded her speech with a stirring tribute to the historic role of the IMF as a valuable forum for coordination and cooperation, and in a low-key manner, knowing that her intent would not be lost, she added that to perform this role, the IMF needs the support of all of its members.
The most intriguing question that was asked of her was about her prediction that there would be more than one reserve currency. She recalled that the United Kingdom once had a reserve currency in sterling and lost that status after World War II. She said reserve currency status depends on the strength of the economy and of the confidence of the rest of the world. She predicted that one day another currency would share this role with the dollar.
When she was asked at the end of the Q&A whether she might run for president of France, Lagarde responded that she enjoys Washington, and her answer seemed sincere and not coy.
(Archived video can be found here
. The prepared statement can be found here
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