You can see that live on cspan, and later at 2 30 p. M. Eastern marx Senate Majority leader Mitch Mcconnell and House SpeakerPaul Reinhold had a News Conference at the retreat. Well bring that to you also on cspan. Sunday night on after words, former speech writer for president george w. Bush and atlantic columnist david frum with his book trumpocracy, the corruption of the american republic. Hes interviewed by Washington PostNonfiction Book critic. Trumpocracy is a book about the study of power. Thats what the suffix means. This is the study of Donald Trumps power, how does he get it . How does he maintain it and how does he get away with if . Trumpocracy is the system of enabling, its system in the white house, the system between trump and congress, the system between trump and the media that enable him and create an audience. Its the system that involves his the republican donor elite, the traditional elements of the republican bheert have succumbed to him and above all the core group of the voters within the Republican Party who enabled him to win the republican nomination and then go on to the presidency. Watch after words sunday at 9 00 p. M. Eastern. Next, International MonetaryFund Director christ ianella guard joins a conversation on the Global Economic outlook as part of the World Economic forum in davos, switzerland. And so delighted again to be moderating the Global Economic outlook after what one has to agree was a rather unusual warmup act. I am very disappointed, however, that for some reason they forgot to provide the band. [ laughter ] which i think we would have enjoyed very much. The previous speaker said three things with which i think we can all agree, that growth is very important, that jobs are very important and trade needs to be free and perceived, and i agree with this, to be fair, and i think those three points, growth, jocks and the nature of the trading system are pretty important for our discussions now. We are meeting at a point in which i think for pretty well the First Time Since january 2008, the web has a tendency to be a bit behind the times so it didnt realize at that time just how bad it was going to be but since ten years of extraordinary Global Economic optimism and about a widely shared and synchronized recovery, so we will discuss the nature of that recovery, the risks in both directions to it and some of the longer term opportunities and challenges it creates, and to do so, if i may introduce to the panel very, very quickly, because you know i think everybody here. I have christ ianella guard to my level. I think shes been a member of this panel for a very long time, and to her left, shes obviously the managing director of the International Monetary fund and to her left is governor carney, governor of the bank of england and the Central Banks have so many governors after all. To his left is carry lamb, is chief executive of hong kong. And to her left is hiriko kuroda, the governor of the bank of japan who has actually been a friend of mine for 40 years. We met at oxford, and to his left is Mary Callahan edoes who is chief Financial Officer of jpmorgans asset and Wealth Management who ive met and shared panels with now on quite a few occasions, and im looking forward very much to this one. So lets start with the shortterm economic outlook, and youve just recently at the imf produced your update which is wonderfullly cheerful and forecasting 3. 9 growth in the world this year and next, so what could go wrong . Well, lets celebrate what could go right for the moment because we are in a sweet spot, as ive said. 3. 9 , 3. 9 in 2018 and 201 is not bad and whats interesting is about 120 countries have actually seen the growth increase last year and we only have onefifth of the emerging and developing countries that are seeing the gdp on a per capita basis decline so its well spread out, and its shared between advanced economies, emerging market economies and the part of the world that i would certainly worry most about is Subsaharan Africa where theres a combination of factors that lead to that lower income per capita. I think we should celebrate that we dont do that too often and at the imf were defining negative risk and we should celebrate. I think one of the reasons we are in that sweet spot at the moment, its a cyclical upswing and its largely attributable to policies that have been implemented, monetary economic policies that we had no idea about ten years ago. Fiscal policies in many corners as well which have been reasonably good. Its debatable what was on exactly eight years ago but in the main its the result of good policies. What the could go wrong, ill mention three vulnerabilities as i see them. First of all, financialble vulnerabilities, and while the u. S. Tax reform will certainly have positive effects in the short term for the u. S. And for other countries around, it might also lead to serious risk and we can discuss that later, if you want, and that has an impact on the financial vulnerabilities, particularly given the high asset prices around the world and the easy financing that is still available. I would say that the second risk which is short and medium term and needs to be addressed in the short term is the excessive inequalities that in many places are growing and creating those fractures that klaus has identified as one of the themes of the World Economic forum this year, and i would say that the third downside or risks that i see is the lack of International Cooperation and the geopolitical risks that could be created as a result. Ill stop here, but happy to comment on any of those three. Well, these are huge points, and well certainly come back to them. Lets turn to one of the central bankers who has produced these outcomes. Central bankers have certainly become controversial. They have been described by a wellknown authority as only game in town, and i think many of us think thats probably truer of japan than anywhere else so there were three arrows and yours is certainly the arrow thats gone further, mr. Kuroda so tell us about your remarkable Monetary Policy, its success and how youre going to get out of it. Thank you, martin. Let me first explain the current status of the japanese economy. The economy is expanding moderately, supported by both domestic and external demand in a well balanced manner. Real gdp has continued to grow for seven consecutive quarters, and the average growth rate during that period is close to 2 . Since japans potential growth rate at this time moment is slightly less than 1 , 2 growth in the last seven quarters is really substantial improvement, and the Unemployment Rate has declined to less than 3 , actually 2. 7 which is each in the japanese context is really full employment, and the current economic recovery has lasted for over 60 months and this is the second longest boom in the postwar era. Going forward japans economy is likely to continue its moderate expansion so the cycle is expected to be maintained in both the corporate world as well as household sector on the back of highly accommodative conditions. On the price front, annual Consumer Price inflation excluding fresh food has been approaching 1 , but it has remained slightly positive, excluding the effect of energy prices. In japan a cop draft between strong economic recovery and relatively weak prices stand out as much at or even more than in the u. S. And europe. Were part improving in labor Market Conditions steadily tightening from its price setting is expected to become gradually bullish and medium and longterm fluctuations are projected to rise. So while Consumer Price inflation is likely to increase while the price activity target of 2 , the deflationary mindset entrenched among people under prolonged differentiation has been more tenacious than expected. Therefore, the bank of japan will continue to support japans economy and prices by pursuing powerful monetary easing with persistence under the socalled quantitative and qualitative easing with various controls. There are various exists in the short to medium term but from my perspective they are mostly external including some geopolitical risks. Can i follow up. Other you have an economy growing significantly above trend for a length of quite an extended period. You have unemployment at 2. 7 , which is clearly very low and falling, and you announced when you became governor, not you, the government and the bank of japan together, that you would hit an inflation target of 2 which didnt seem most poem would say if the economy is like this you would have got there, so why is there no inflation . What down think is going on and how does that fit with what youre seeing in many other areas like eurozone and the United States as well . I think there are two factors behind rather slow response of prices and in relation to strong Economic Growth. One is sort of universal common factor like globalization, new technologies, even effects so on and so forth, and all of them may make inflation rather subdued. This is universal factor, but second, japans specific factor as i just said in my initial remark, that is to say after is ayear long deflation from 1998 through 2013 the deflation and mindset people expect prices and wages to not rise, and this kind of mindset is not as strong and its not so easy to eradicate this kind of mindset from japanese household as well as companies, but there are some indication that wages are actually rising and some prices have already started to rise and even medium to long term Inflation Expectations which have been so weak in the last couple of years and are now trying to pick up and there are many factors which made achieving 2 inflation target or price target so difficult and timeconsuming, but i think we are finally close to the target. Okay. Which hope so since you promised to the government you would deliver t. Mark carney, you dont have the problem of low inflation at the moment. You do have the problem of managing Monetary Policy in the face of some strange decision that the british people, got bless them took in june 2016, one which those who ever read me will realize i wasnt wildly enthusiastic about. You have started a tiny increase in Interest Rates so a step towards normalization. How do you perceive the Monetary Policy challenges for you and other Central Banks in similar situations ahead in this strange environment of strong growth but still generally contained inflation and where among other things people are concerned about is that the this normalization process might reveal more financial fragility than is now evident. What is the path forward . In the next what 15 minutes should i answer that. You can do it in two minutes. To do it in two minutes let me talk about the normalization challenge, if i could, and if i could pick on what we just heard. The nature of the expansion, the recovery as the imf has just indicated, its stronger. Its getting up to around 4 . Its broader. Its 90 of economies growing faster than potential so slack is being used up, and its also healthier. Ill give you one example. In terms of the acceleration of g7 growth in the last year, 80 , 80 plus of that has been investment picking up and net trade pick up, so this is not a consumer boomled poll recovery or acceleration and all of those have consequences for normalization as you can anticipate. The first slack being used up is the phillips curve coming back. Thats the question in the face of bigger secular pressures, globalization technology as just mentioned and all of us have been discussion over the course of this of this woke and at other times. I think Crucial Point is as you get towards full employment as the output gap shifts, they call it a phillips curve for a reason, and you start to see the convex element of the slope show the pickup should be there or should begin, maybe not quite to historic degrees, so we have to be cautious but should come, and if you look at wage behavior in the u. S. , in the uk, some of the other well, maybe i shouldnt speak for other economies, but you see that firming of wages which once you adjust for productivity growth and some underemployment and up until very recently a low level of churn in the labor market, it starts to fit together as least directionally so theres element thats pushing up and the second element pushing towards normalization i should say of policy, the second element is that healthier, more investment as part of recovery so investment picking up relative to savings and weve seen, as you know, a big shift in fiscal policy. I think on advantage advanced economies a 2 to 2. 5 drag now adding, fending on how you add multipliers, adding to growth maybe half a percent or so on average, somewhere in that zone, but thats a big, big swing so investment up. Savings down and pushing up on the equilibrium rate of interest. The third element of that i would highlight is just the stance of policy as a whole of if i could use the term for these purposes the g4 so the members of the g7 who were practicing quantitative easing, and if you look at the flow of net fiscal issuance minus the bonds being taken out of the market by asset purchases, whether it was the boj or the ecb or bank of england or the fed, weve shifted from collectively 2013 to 2017 basically no net flow or even bonds being taken out to this year on the order of magnitude to about 1 trillion of net issuance based on announced plans and potentially that going up to 1. 5 trillion or higher next year so that one would expect to push up on rates. So in the context of normalization you have sort of a real economy providing some support for it. You have some technical factors which play into it. You have a very tough judgment to be made about where is the equilibrium rate of interest which has been very, very low and arguably should be raising a bit. You can make an argument about direction but certainly with not any precision about degree. One has a sense of direction i would say as a whole for the Central Banks, a regime shift in terms of towards normalization, but a requirement for each of us to be quite prudent and patient as appropriate in making those judgments. The last thing i will say and i wont expand on that unless you want, the uk is in a relatively unique situation in that over the course of the next year as the negotiations with the eu 27 progress, were going to find a lot more about what the supply capacity of the economy is in the near term and what the right level of the Exchange Rates should be, whether or not they are going to be there for other trade costs and how all of this affects demand and of course it is all of those factors together which determine the appropriate stance of Monetary Policy. Let me ask one followup question because i go to the i was trying to run out clock. Ill come back to that in a moment. Yeah. You have had a central role through the Financial Stability board in the strengthening the Global Financial system. I get and every time i write on this sort of hundreds and hundreds of comments below on the lines of, these crazy Central Banks have already, and if they havent already will soon have created the most unmanageable asset price bubble ever, the omni bubble. It will burst, probably when you as of when you raise rates, you collectively, and the crash will lead to a total meltdown. Yeah. And this sort of thing. On a scale of 1 to so how likely is that senator. Which way . You can choose. One zero risk, essentially all of you go away and not worry at all and 10, run away and get a big umbrella because the house is going to fall down on you. Right, two points. Its a composite probability. Whats the probability there will be an adjustment in asset prices . Yeah, that probability has gone up. If you look at Corporate Bond spreads, high yield spreads, near alltime lows, last seen before lkccm, just before the Global Financial crisis in a rising rate environment, one would expect adjustment there. Other asset prices accordingly. I think the big question is not the market will find the right level for assets. The question is whether the core of the Financial System is in a position thats going to amplify those movements in an rad verse way and there will be a feedback to the real economy, and on that component of probability i would put that as quite low because its not just the regulators. Its the Financial Institutions represented here and across the world that have really transformed the liquidity and capital positions of the institutions. Give you very quick numbers, if i may. Precrisis, the coverage of shortterm liabilities for banks, the major banks particularly in the uk, plus their access to central Bank Facilities was 10 . Now thats 110 . So they are fully covered. Both their own liquidity and access to the liquidity on all the shortterm liability and second figure, and weve had healthy debates on it, but the overall level of capital standards have gone up ten times but actual levels of capital have gone up about five times for the major banks, apples to apples comparison in terms of capital. Thats a huge shift and the type of