Central Banking: Beyond the Mandate
20 Jan 2026 16:30h - 17:15h
Central Banking: Beyond the Mandate
Session at a glance
Summary
This panel discussion at what appears to be the World Economic Forum in Davos focused on whether central banks possess adequate tools to navigate current extraordinary economic challenges and maintain their mandates amid growing pressures. The panel included central bank governors from Germany (Joachim Nagel), Israel (Amir Yaron), and Switzerland (Martin Schlegel), along with economist Janice Eberly from Northwestern University.
The central bankers largely agreed they have sufficient tools within their current frameworks, emphasizing that interest rate policy remains their primary instrument, supplemented by balance sheet operations and foreign exchange interventions when necessary. However, they stressed these tools must be used consistently with their core mandate of price stability. Amir Yaron highlighted Israel’s experience during the October 7th crisis, where the central bank successfully used targeted, time-limited interventions including foreign exchange operations while maintaining monetary policy consistency.
A major concern throughout the discussion was the threat to central bank independence, particularly regarding recent political pressures on the Federal Reserve. All participants emphasized that independence is crucial for maintaining credibility and effectively delivering on their mandates. They expressed strong support for Fed Chair Jay Powell and warned against the dangers of politicizing monetary policy.
The panel also addressed fiscal dominance concerns, with participants noting that while some hope inflation could reduce debt burdens, this approach risks undermining central bank credibility and may not be effective given the short-term nature of much government debt. There was debate about whether central banks should comment on fiscal policy and structural reforms, with European central bankers more willing to speak beyond their core mandates when spillover effects impact monetary policy effectiveness. The discussion concluded with cautious optimism about central banks’ ability to maintain their independence and fulfill their mandates despite current challenges.
Keypoints
Major Discussion Points:
– Central Bank Independence Under Threat: The panel extensively discussed concerns about political pressure on central banks, particularly the Federal Reserve under recent attacks on Chair Jay Powell and Fed Governor Lisa Cook. The panelists emphasized that central bank independence is crucial for maintaining credibility and effectively conducting monetary policy.
– Adequacy of Current Monetary Policy Tools: Central bankers debated whether they have sufficient tools to address extraordinary economic times, including interest rates, balance sheet policies, foreign exchange interventions, and liquidity support mechanisms. Most agreed they have adequate tools but face challenges in implementation during crises.
– Fiscal Dominance and Government Debt Concerns: A significant focus was placed on the relationship between fiscal and monetary policy, with concerns about rising government deficits potentially constraining central bank effectiveness. The discussion included worries about fiscal dominance where governments might pressure central banks to keep interest rates low to reduce borrowing costs.
– Crisis Management and Communication: The panel explored how central banks should respond to various crises, using examples from Israel’s recent conflict, regional banking crises, and COVID-19. They emphasized the importance of clear communication, targeted interventions with defined limits, and maintaining consistency between different policy tools.
– Scope of Central Bank Mandate: There was debate about whether central banks should speak publicly about issues beyond their core mandate, such as fiscal policy, structural reforms, and institutional governance. European central bankers were more open to this broader communication role compared to their counterparts from other regions.
Overall Purpose:
The discussion aimed to examine whether central banks possess adequate tools and institutional frameworks to navigate current economic challenges while maintaining their independence and credibility. The panel sought to address concerns about the evolving role of central banking in an era of increased political pressure, fiscal challenges, and complex global crises.
Overall Tone:
The tone began as analytical and professional, with central bankers carefully explaining their institutional perspectives and tools. As the discussion progressed, it became more concerned and defensive, particularly when addressing threats to central bank independence. The moderator’s persistent questioning about specific interventions and political pressures created moments of tension, with panelists becoming more guarded in their responses. Despite these challenges, the overall tone remained respectful and collaborative, with participants showing mutual support for the principle of central bank independence.
Speakers
Speakers from the provided list:
– Steve Sedgwick – Moderator/Journalist, mentioned as having been “in and around markets for 40 years”
– Joachim Nagel – President of the Deutsches Bundesbank (German Central Bank)
– Amir Yaron – Governor of the Central Bank of Israel, in his second term, also serves as economic advisor to the government
– Janice Eberly – James R. and Helen D. Russell Professor of Finance at the Kellogg School of Management, USA; former Assistant Secretary of Treasury for Economic Policy and Chief Economist of the U.S. Treasury under the Obama administration (2013)
– Martin Schlegel – Chairman of the Governing Board of the Swiss National Bank
– Audience – Various audience members who asked questions or made statements
Additional speakers:
– Francois Villers de Gallo (also referred to as “Francois Villareal”) – Central banker, colleague of the panelists, participated as an additional voice from the audience
– Martin Galstan – Governor of the Central Bank of Armenia, spoke from the audience
Full session report
Central Bank Tools and Independence: A Comprehensive Panel Discussion
Introduction and Panel Composition
This panel discussion, moderated by Steve Sedgwick (who noted his 40 years of market experience), brought together prominent central banking figures to examine whether monetary authorities possess adequate tools to navigate extraordinary economic challenges whilst maintaining their institutional mandates. The distinguished panel included Joachim Nagel, President of the Deutsches Bundesbank; Amir Yaron, Governor of the Central Bank of Israel; Martin Schlegel, Chairman of the Governing Board of the Swiss National Bank; and Janice Eberly, James R. and Helen D. Russell Professor of Finance at Northwestern University’s Kellogg School and former Assistant Secretary of Treasury for Economic Policy.
The discussion addressed both technical questions about the adequacy of monetary policy tools and mounting concerns about central bank independence, particularly regarding political pressures on the Federal Reserve.
Central Bank Tools and Their Adequacy
Broad Consensus on Tool Availability
The panel demonstrated substantial agreement regarding the fundamental adequacy of current central banking tools. Joachim Nagel expressed confidence that “over the last 25 years, I think the euro system showed that we have all the instruments, that our toolkit that we enriched the toolkit over the time” and that they have the necessary instruments to conduct monetary policy and achieve the 2% target.
Martin Schlegel reinforced this view, maintaining that central banks have sufficient tools including interest rates and foreign exchange interventions, with no fundamental rethink of central banking needed.
Amir Yaron provided a structured framework for understanding these tools, explaining that interest rate policy sets the monetary stance, liquidity tools repair market functioning, and targeted support should remain on the fiscal side. This delineation proved crucial for establishing clear boundaries between monetary and fiscal responsibilities.
Balance Sheet Policy Framework Concerns
However, Janice Eberly introduced an important caveat to this consensus, highlighting that whilst the Fed has the same tools of monetary policy, it lacks a clear framework for balance sheet policy, which is crucial for managing liquidity crises. She noted that the Fed’s framework review had not adequately addressed balance sheet policy, explaining: “The biggest concern is actually less about the fiscal side, which really is directly about interest rates, whereas the balance sheet side is thinking about longer-term interest rates.”
Eberly’s concern centered on crisis scenarios like March 2023, where there was instability and illiquidity in the banking system, and how central banks should respond when operating with significantly larger balance sheets than historically.
Crisis Management: Real-World Applications
Israel’s Targeted Intervention Approach
Amir Yaron provided compelling evidence of effective crisis management through Israel’s response to the October 7th conflict. His approach demonstrated the importance of clear communication and capped quantities in maintaining market confidence whilst preserving the distinction between monetary and fiscal policy.
During the crisis, Israel announced a $30 billion foreign exchange intervention capacity but ultimately used only $8.2 billion. Yaron emphasized that “it’s important to have in mind capped quantities or timely operations, so the lines between quasi fiscal and monetary don’t get blurred or don’t get blurred as minimal as possible.”
The Israeli experience illustrated how transparent communication about intervention limits can strengthen market confidence rather than invite speculation. Yaron noted that “once they are boxed they prevent blurring the lines between fiscal and monetary,” providing a practical framework for crisis response that maintains central bank credibility.
Swiss Approach to Foreign Exchange Operations
Martin Schlegel reinforced the importance of maintaining clear policy objectives in foreign exchange operations, stating that FX interventions are conducted solely for monetary policy purposes, not to give exporters unfair advantages or prevent current account adjustments. He referenced the joint statement (not agreement) regarding Swiss currency policy, emphasizing that their approach focuses on monetary policy objectives rather than competitive considerations.
Despite Sedgwick’s attempts to elicit specific comments about current intervention activities, Schlegel maintained that the Swiss National Bank’s approach demonstrates how central banks must navigate international scrutiny whilst maintaining domestic policy effectiveness.
The Independence Challenge
Historical Perspective on Federal Reserve Independence
Perhaps the most striking aspect of the discussion was the concern expressed by international central bankers about Federal Reserve independence. Joachim Nagel provided particularly poignant historical context: “I never thought that I have to discuss in my career that the independence of the Fed is in danger… It was the US that gave the Germans an independent central bank in 1948. And that was the starting point that Germany could grow over the past decades. And now we have to discuss the independence of the Fed.”
This historical perspective underscored the irony of the current situation, where the country that established central bank independence as a cornerstone of post-war economic stability was witnessing threats to that principle within its own institutions. The discussion included specific mention of defending both Jay Powell and Lisa Cook in the context of maintaining Fed independence.
Institutional Safeguards and Performance-Based Credibility
The panellists offered varying perspectives on protecting central bank independence. Martin Schlegel emphasized that central bank independence is absolutely crucial and that the only way to gain trust is by delivering on the mandate of price stability. This performance-based approach reflected the view that independence must be earned through consistent delivery on mandates.
Amir Yaron provided a more structural perspective, arguing that independence is not just a legal issue but requires accountability, decentralized decision making, and institutional insulation from political cycles. His framework highlighted the multifaceted nature of independence, encompassing legal, institutional, and operational dimensions.
Janice Eberly noted that whilst the Fed has institutional safeguards, credible leadership is especially important given the dual mandate, highlighting the particular challenges facing the American central banking system.
Fiscal Policy Interactions and Constraints
The Inflation-Debt Relationship
One of the most intellectually rigorous exchanges centered on the relationship between fiscal policy and monetary policy, particularly regarding the temptation to use inflation as a mechanism for reducing government debt burdens. Janice Eberly revealed that roughly two-thirds of chief economists thought that the most likely intervention to bring down debt levels was sustained inflation.
However, Eberly immediately highlighted the limitations of this approach, explaining that inflation is not appealing to the public and that fiscal dominance works by trying to push down interest rates in the short run to make government borrowing less expensive, but the long-run mechanism to bring down debt is higher inflation.
Credibility and the Trade-off Fallacy
Amir Yaron provided a powerful rebuttal to the inflation-as-solution narrative, arguing that “not only do I not believe that there is long run trade off in this thing. I think even in the short run, because monetary policy and central banks behaviour… If you lose credibility, that trade off doesn’t exist even in the short run, because the curve just becomes steeper.”
This exchange highlighted a fundamental tension: whilst fiscal authorities may view inflation as a potential solution to debt problems, central bankers recognize that pursuing such a strategy would undermine their credibility and prove counterproductive.
European and National Fiscal Frameworks
The discussion addressed fiscal governance challenges, with Sedgwick questioning the effectiveness of European fiscal rules. Joachim Nagel defended the framework while acknowledging that Germany itself has a large fiscal package starting in 2024 that will be more visible by 2027.
Martin Schlegel highlighted Switzerland’s federal debt brake rule, which has been in place since 2001, as an example of effective fiscal constraint mechanisms.
Janice Eberly noted important differences in debt structures across countries, mentioning that the UK has a 14-year average maturity while the US has under 6 years, which affects how fiscal and monetary policies interact.
Communication Beyond Traditional Mandates
The Scope Debate
A particularly nuanced debate emerged when François Villeroy de Galhau (initially identified in the transcript as “Francois Villers de Gallo,” then “Francois Villareal”) posed a fundamental question from the audience about whether central banks should speak about fiscal policy, structural reforms, and broader economic issues. His perspective was that “in such extraordinary times we should use our independence and our expertise at least to bring technical lights on this debate.”
Regional Differences in Communication Traditions
The responses revealed significant regional differences in central banking communication approaches. Joachim Nagel embraced a broader communication role, arguing that modern central banking requires speaking about spillover effects from fiscal policy due to dramatic changes in the world.
Amir Yaron took a more cautious approach, suggesting that central banks should contain themselves to economic analysis when addressing broader issues, such as institutional strength and independence.
Janice Eberly highlighted that the Fed traditionally never speaks beyond its core mandate, unlike European central banks which communicate more broadly, underscoring different institutional cultures across central banking systems.
Martin Galstan, Governor of the Central Bank of Armenia, also contributed to this discussion, adding perspective from emerging market central banking experience.
Unresolved Challenges and Future Considerations
Framework and Operational Gaps
The discussion identified several ongoing challenges requiring attention. The lack of a clear framework for balance sheet policy at the Federal Reserve, particularly for managing liquidity crises with large balance sheets, remains a significant concern that could prove problematic in future crisis situations.
Political and Institutional Pressures
Ongoing concerns about potential threats to Federal Reserve independence represent a continuing challenge for central banking credibility. The panel’s concern about these threats suggests that this issue requires ongoing vigilance and institutional defense.
Market Expectations and Policy Flexibility
The discussion highlighted ongoing market expectations for central bank interventions, creating challenges for central banks seeking to maintain appropriate policy flexibility whilst managing market dynamics. This was particularly evident in Sedgwick’s persistent questioning about Swiss intervention policies.
Key Insights and Implications
The Credibility Foundation
One of the most significant insights was the recognition that credibility represents the fundamental asset of central banking. Yaron’s argument that credibility loss eliminates even theoretical short-term benefits of fiscal dominance highlighted how central bank effectiveness depends entirely on market confidence in institutional commitment to mandates.
Operational Innovation in Crisis Management
The discussion of Israel’s crisis response demonstrated how operational innovation—specifically the use of capped quantities with clear communication—can enhance rather than undermine central bank effectiveness. This approach offers a model for other central banks facing similar challenges.
Historical Context and Current Challenges
Nagel’s historical observation about the irony of questioning Federal Reserve independence provided crucial context for understanding current challenges. His reminder that the United States established the principle of central bank independence as a foundation for post-war prosperity underscored the stakes involved in current political pressures.
Conclusions
The panel discussion revealed both the strengths and vulnerabilities of current central banking frameworks. Whilst central bankers expressed confidence in their technical tools and institutional safeguards, the discussion also highlighted significant challenges requiring ongoing attention and potential adaptation.
The concern about threats to central bank independence transcends technical monetary policy considerations and represents a fundamental challenge to the institutional foundations of modern economic governance. The panel’s defense of these principles, particularly from international perspectives, underscores the global stakes involved in maintaining central bank credibility.
The technical discussions about balance sheet policy, crisis management frameworks, and communication strategies revealed areas where central banking practice continues to evolve. The different approaches taken by various central banks suggest that institutional learning and adaptation remain ongoing processes.
The discussion ultimately reinforced the view that whilst central banks possess adequate tools to address current challenges, the effectiveness of these tools depends critically on maintaining institutional independence, credibility, and clear communication about policy objectives and limitations. The ongoing threats to these foundations represent perhaps the most significant challenge facing central banking today, requiring continued vigilance from both central bankers and the broader policy community.
Session transcript
Ladies and gentlemen, these are extraordinary times and this is an extraordinary panel to discuss one of the key issues, which is do central banks have the tools available to cope with what seem to be extraordinary times.
And what I want to also get into is the historical perspective, meaning that actually these aren’t quite as extraordinary times as they feel at the moment. To this journalist who has been in and around markets for 40 years, they do appear to be unprecedented. Central banks facing growing pressure from all kinds of areas as well.
Digital currencies, trade-offs between growth and inflation and politicising of their role. How are central banks rethinking their monetary tools needed to meet this moment and ensure economic stability? I have told my panel that they can take this pretty much any way they want because there are so many big issues to cover here as well.
And it’s very nice to see and yet another eminent central banker in the front row as well, who I’m sure will be very interested in seeing what they have to say. Growing pressure from all directions. Was it ever the case or unprecedented now?
New threats, new challenges, left, right and centre. Central banks rethinking the tools, the threat to independence. I will ask the panel about that as well.
I know that Carte Blanche, central bankers from around the world have rushed to the defence of Lisa Cook, but most recently, of course, Jay Powell for the extraordinary assault that the Fed finds itself under at the moment.
Fiscal dominance, I know that’s something that Jan has a very strong view on as well. So, maybe we’ll visit that. Government budgets, deficits, dictating monetary policy.
Again, do we have the tools to cope? Is it a worsening problem there? Investors losing confidence, creating potential credibility gaps as well.
Proliferation of digital assets, crypto, evolution of payment systems, banks exploring CBDC as well, digital currencies to safeguard monetary sovereignty as well. we constrain, too constrained. Is there enough growth happening to work our way out of some of these deflationary issues as well?
And do central banks need to revisit their toolkits as well? I’m going to go straight into this as well and just ask a very basic question down the line to the panelists. And I’ll start off with Joachim and I’ll work my way down here as well.
Joachim, do you have the tools given the extraordinary events, the extraordinary proliferation of different factors and different concerns that you have at the moment, do you have the tools to actually create cohesive and monetary policy which is basically going to soothe a lot of the nerves for the markets, for investors, for societies?
Thank you very much for attending, for having the chance to attend here this great panel with my esteemed colleagues. I think over the last 25 years, I think the euro system showed that we have all the instruments, that our toolkit that we we enriched the toolkit over the time and we did over the time everything to conduct monetary policy in a way that we try to achieve our target coming back to 2% and over the last three years now we are we did a lot and we showed our flexibility and definitely, we do have the tools to do what is necessary to fulfill our mandate.
As fiscal in Germany especially, I guess, people are focusing on the fiscal side of things more than ever now. The responsibility of various governments over the years has been in marked contrast to what we’ve seen elsewhere, not only within Europe, but also globally as well. Is the new fiscal spending that we’re seeing in Germany going to create more problems for the Bundesbank and for the ECB?
Well, you alluded to that in your introductory statement.
We are living in extraordinary times and I believe it was necessary that Germany, the German government came up with such a A big fiscal package, and I think it is necessary to do what we can to do everything to do more on the defense side, but also what is necessary on the infrastructure side.
So I think this large fiscal package will come with a positive effect, especially it starts this year. We will see more in 2027. But the government did it right to really launch this large fiscal package.
Is the ECB doing enough for its secondary mandate, price stability of course being the first, to support the broader goals of higher employment and environmental protection? I think first of all we have to fulfill our first mandate, the most important one, price stability. Here we are close to our target.
And I guess the best thing what a central bank can do to get to a higher level of growth is fulfilling the first mandate, price stability. This is the condition for all what is necessary to really have all the good things that we need to come to a higher growth path. And so I believe, yes, we are doing a lot to support the governments.
But at the end we are independent central banks within the rural system. So first of all, price stability, this is key.
I’ll come back to independence in a few moments’ time. I also realize I haven’t done the introductions. I assumed you knew everybody, everybody, but I’ll just remind you, this is Joachim Nagel, who is the president of the Deutsches Bundesbank.
I think you know that. Francois knows that anyway. Let me move on to Janice Eberle, who is the James R.
and Helen D. Russell Professor of Finance at the Kellogg School of Management, USA, and has an extraordinary resume as well, working with various administrations as well, of course, not least the Assistant Secretary of Treasury for Economic Policy and Chief Economist of the U.S.
Treasury under the Obama administration in, I think, 2013, was it? Yeah. Do you think that the Federal Reserve, at the moment, has the tools available or necessary to carry out its mandate?
It’s an interesting time to ask that question because the Fed has just gone through a framework review and its 2020 framework, they focused on the set of issues that were post-financial crisis, so low levels of inflation, close to the zero lower bound, and slow recovery from the financial crisis in labor markets.
So the 2025 review sort of looked back at a period of much higher inflation, a stronger labor market once we got past COVID, and so they pivoted much more than people expected, I think, because it’s hard for a large institution to introspect and make changes that are visible to the public.
And they shifted the mandate to sort of broaden out from beyond the post-financial crisis episode and allow for decision making that was sensitive to what’s happened to the economy, but not limiting the tools to the current situation.
So now they have the same tools of monetary policy, but the thing that we could come back to if you want, if others are interested, is that the thing they didn’t touch, which many of them, myself included, asked about, was a framework for balance sheet policy.
So when you talk about the range of tools, balance sheet policy has been very important in some central banks, and there still remains questions about how to manage it, and especially how to respond to liquidity crises with the ample reserves framework, with the big balance sheet that the Fed has.
Let’s go straight into that, balance sheet policy as well. And it is something which I think is going to become more and more prevalent as we do – again, we talk about fiscal dominance being a potential issue as well – how the balance sheet is managed, how that is used to offset concerns about the fiscal dominance side of things.
Just tell us what your biggest concerns are about the framework of that balance sheet.
I think the biggest concern is actually less about the fiscal side, which really is directly about interest rates, whereas the balance sheet side is thinking about longer-term interest rates. But the concern there is what happens in, say, a March 2023 situation where there is instability and illiquidity in the banking system. This is when the regional banking crisis hit.
Yes, exactly. And how can the Fed respond in a situation like that or in 2019 when the balance sheet is very large but you’re having specific liquidity issues at individual financial institutions?
Do you not fear that the balance sheet tool is going to become more and more prevalent, though? I mean, you talked about the control of the longer end. It’s a longer end where everybody has been talking in this room and beyond and everywhere in Davos for a long time, most recently, when we’re looking at the current situation.
Yeah, it’s already quite prevalent. You know, the balance sheet grew from 5% of GDP in the US in 2005 to currently over 20% of GDP. So I think that the concern is how it can shrink and if it can shrink, given the banking and financial institution regulation that we have.
Amir Yaron is the Governor of the Central Bank of Israel and is in his second term now. And he’s also the most incredibly behaved panellist as well because he’s the only one who read the questions and realised there were five questions here as well. And I can also tell you, and again, it was probably Chatham House, but I can also tell you that the conversation in the green room just before we came on was, yeah, we’re looking to potentially grow some in the region of 5%, of which at least one central bank governor here is like, poor guy.
Wow, that’s pretty good. We wouldn’t mind a bit of that. No name’s Joachim Just tell us about the specific case of Israel and do you have the tools available?
I Guess more broadly I would say interest rate to me interest rate policy sets monetary stance Liquidity tools. Yeah are there to repair market functioning and monetary transmission when stress impairs it and Targeted support subsidies fiscal that’s Should go on the fiscal side in it, you know, it’s exactly the point where you move from liquidity issues versus solvency The solvent the liquidity zone is on the banking side the solvency gets on the fiscal side And I think when you talk about the balance sheet and some of these issues regarding balance sheets and crisis management It’s important to have in mind capped quantities or timely Operations, so the lines between quasi fiscal and And Monetary don’t get blurred or don’t get blurred or blurred as minima minimal as Possible.
So I think these are very very important for example what the Bank of England did in the quake in the case of the guilt it was two weeks and In a known quantity in the beginning of the war in Israel. We announced we’re going to sell up to 30 billion dollars Of reserves to help the functionality of the FX markets these things once they are boxed they I think prevent blurring the lines between fiscal and Monetary so I think the tools are there there’s a Obviously, been a lot of volatility and a lot of events both in the world and in Israel from COVID.
We get Ukraine-Russia inflation, now the war in Israel. And you have to craft the right tools for each event. But regular monetary policy should be primarily targeted at making sure that you set economic stability through price stability and the liquidity issues that sometimes or crisis management that appears with some of these events have to be dealt with very specific tools with the primary focus that they are.
It’s communicated, that’s part of the issue, that they are very targeted and you don’t blur the lines.
I’ll come to Martin in a few moments’ time, but you’ve obviously started up a conversation here between what Janice was saying and capped quantities. For me, as a former market practitioner, so I’m not ignoring you lot over here as well, but I will be naturally be turning here. But the capped quantities give the market an opportunity to take on the central bank, don’t they?
Again, you have to know which tool to apply when, all right? So, we said up to 30, in our case, we said up to 30 billion and we thought that was enough to allow the markets to function, whereas the alternative, let’s say, would have said I’m defending a particular exchange rate.
That’s when you get a lot closer to market speculation. So, in that context, that was a much better tool than trying to defend a particular exchange.
For sure, and I appreciate defending a particular level. It’s a green light for the market to take you on. Of course.
Which is why a certain central bank to your left creates a degree of opacity when looking at, perhaps, interventions in the market, which may or may not happen. But. But not defending level.
I appreciate that as well, but giving a capped quantity again Market knows it can go up against that much and then can just try and push further which is going to force you into further
Action again down the line, isn’t it? There’s look whenever you are in a crisis situation There are risks There’s uncertainty What what I can say we announced we’re gonna do up to 30 billion. Yeah We ended up using only eight point two billion gave the intention People understood and people knew we have ample reserves Obviously, we didn’t tell the markets when and if and how we we operate in the market, but that was enough important signal at that Huge peak of uncertainty to give confidence to not only the FX market But to the Israeli bond and stock market and that was very very important We are very transparent at the end of every month.
We tell the market What is our reserve position? Once they saw that we only used eight They were very confident and the exchange rate
Because I think we’d all benefit from just a Recap of those extraordinary events that you had to deal with as a central bank governor of it of Israel When the those devastating attacks happened in Gaza Obviously in Israel and then Gaza thereafter as well.
Just just did you feel that you had every tool available? Did you have to work more with the government to to stabilize things? I’m just just tell me how you went about it.
So I want to add one more point and that is not only communication
It’s also consistent see with monetary policy. So we use this tool in the FX market at the same time When the 7th of October happened We had an interest rate decision two weeks after the whole country said the governor needs to lower interest rate We said no that is inconsistent with selling reserves and with higher risk premia, and we had to sort of educate the market that’s not gonna happen.
So consistency when you are in a crisis and you are using unconventional tool, consistency with the remaining monetary policy tools is very important. So that’s one point. The second point about fiscal, obviously there were a lot of fiscal plans.
It took more time for them to be implemented. The government did some of them. We also serve as a role of the economic advisor to the government, and I’m glad to say the government did listen to a lot of our commendation in those times of very high peak uncertainty where the markets were looking at Israel, what is gonna happen to debt, and they did do difficult fiscal consolidation both in the 24 budget and the 25 budget, and I think that was important.
Of course, beyond the other geopolitical developments to help maintain market confidence in Israel.
Amir, thank you very much indeed for that, and it’s nice to know at least one government out there listens to the central bankers when it comes to their fiscal responsibilities. Martin Schlegel, of course, he’s the chairman of the governing board of the Swiss National Bank as well. Martin, you know that you’re in a unique position as well because when there are crises happening around the world, whether they are in Europe, whether they’re in the United States, whether they’re in Israel, people turn to Switzerland for their safe haven.
It is a bastion of stability that creates different problems for you and the SMB.
So first, when I read the title of this panel, Central Banking Beyond the Mandate, I had to smile because it was almost like a provocation because central banking is not beyond the mandate. So what we do, we act within the mandate, and of course, we must not act beyond our mandate. What we also think and what we also have at the Swiss National Bank is a narrow mandate and a very clear mandate, which is price stability and taking due respect of the economy.
It has been mentioned many times, so we live in very uncertain times, that’s very clear, but there’s certainly no rethink of central banking needed. Instead, central banks need to focus on their core mandate, which is, as I have said, price stability, because this price stability is the contribution the central bank can make to prosperity and growth in a country.
What’s also very important is central bank independence, because for a central bank it’s much easier or it’s almost a precondition to reach this price stability is this independence. And of course, as we all know, this independence comes with accountability and also central banks have to explain what they do and how they do things. So you asked about the tools, and also there we think we have the tools, we have the interest rates, and we have also, as Amir, we have also FX interventions.
You have mentioned whenever there’s a crisis in the world, the Swiss franc is a safe haven and tends to appreciate. And of course, this makes monetary policy for us not easier, it makes it more difficult, because the exchange rate is also very important for inflation, which means if you have there’s a crisis, we have an appreciation, and then we also have a lower inflation.
So it makes it more difficult, but I’m really convinced that we have the tools.
An agreement was reached whereby you agreed not to manipulate the currency. A statement was recognizing that market interventions are a valid tool for addressing currency volatility or disorderly moves in FX. I struggle, and I want you to clarify for me, the difference between manipulating the currency as a U.S.
administration might see it and valid interventions in order to keep down the value of the Swiss franc in days like today where you are surging against the greenback in the last couple of days and you are reaching four-week highs versus the euro.
But I think it’s specifically, I’m not worried about Joachim’s reaction to the Euro-Swissy, but I am more concerned about the administration’s reaction.
So first of all, this was not an agreement. It was a joint statement, which is a big difference because we cannot and will not make agreements with others about monetary policy because we are independent. And what’s in this joint statement is basically it confirms what we have done for years.
So when we intervene in the FX market, it’s because of the monetary policies, because inflation was too low. Then we had to dampen appreciation of the Swiss franc. But you also had episodes where inflation was too high and then we sold foreign currency and bought back the Swiss franc.
So when we intervene in the FX market, it’s always because of monetary policy. It’s not to give Swiss exporters an unfair advantage or to prevent adjustments of the current account. This has to be very clear.
It’s monetary policy and nothing else.
Let me just make the point that the latest Federal Statistics Office data showed below forecast imports, below forecast prices, 1.8% lower year-on-year as well, with the Swissy surging in recent days.
Is this a moment where the Swiss National Bank needs to intervene? in order to maintain that price stability?
We never comment on interventions in retail, of course.
You appreciate everybody I had to try. And Martin knew it was coming. Please, sir.
But, of course, it’s a very difficult situation for Swiss exporters. They have to… I mean, for them, almost every day they have to compete in the international markets, and with a strong currency, this is not easy.
And I have really great respect for all these companies that compete successfully in the international markets.
Yeah, if I didn’t get anywhere on intervention, I won’t get anywhere on zero or negative interest rate policy. So I’ll just let Joachim come in straight away on this.
Yeah, yes. So, first of all, what I learned since I’m a central banker, make no comments on exchange rates. This is not a good idea.
But what I would like to comment is on fiscal, because the euro system here is in a unique situation. We are not a fiscal union. We are just a monetary union.
So we have… Is that the problem?
Well, it’s not a problem, but from time to time, it could be challenging.
I can’t help thinking when I read Leto and I read Draghi, and the latter providing a few bits of support for the market over the years, I can’t help thinking it is part of the problem.
I think the challenge is we are 21 member states, so there’s quite a heterogeneity between the member states. So what I would like to address is the following, that at the end, it is important that fiscal is playing an important role, but shouldn’t contradict what we do on the monetary policy side. And so we have rules within the European Union.
We have the stability and growth pact. And yes, I said it, that these are extraordinary times, but this shouldn’t be used as a kind of an excuse when it comes to fiscal. At the end, the point is coming where fiscal consolidation is of utmost importance.
Joachim, you just said you have rules, you have the stability and growth pact. I’m pretty sure when I look at some of those rules, they are broken left, right and centre by countries across the world. Europe and by the eurozone as well.
If the rules are broken and there is no punishment How good are the rules?
So reading in here in between the lines in your question is that you don’t believe in the rules that we are
No, no, I believe in the rules. I don’t believe in adherence to the rules
well, I believe So here at the end from a monetary policy point of view I think I have the strong conviction that These rules has to be fulfilled and we central bankers within the euro system We are asking for fulfilling these rules.
And this is the responsibility that I see on the political side that they Concluded on all these rules. So at the end they do have to fulfill all these rules
Whether it’s in France, whether it’s in Israel, you know, you’re advising government 3.9 percent You said it’s too high a deficit in the United States Janice. It’s 6% It’s too high a deficit The president of France is struggling to get a government that can actually in get through a budget which will be cutting those as well I don’t see how that is. It’s gonna solve itself positively
So what I definitely will not do is to comment on one or the other countries in Europe but what I think is important here is the direction of Where let me say the budgets are going and what I see all over Europe that all the government that all the country heads they know their responsibility and Know what they have to do at the end.
So we have to convince financial markets on a daily basis, of course and there is a Understanding and we learned a lot. Let me say and we learned it in a hard way over the last 15 years How important it is to deliver at the end? on stable Budgets and fiscal is so important in that context that I see that every country within the Euro system, they know what they have to do.
And I promise you, at the end, we will deliver on this.
I hope so. Janice, this is a very good point to bring in, where we’ve been talking about fiscal positions worsening, the concern that you have about fiscal dominance.
Yes, I mean, as Amir was speaking, he wanted to make a clear distinction between movements or policy interventions that are monetary and those that are for liquidity, and then separate that distinctly from fiscal policy interventions.
And so I’ll refer to the survey that was circulated here from the chief economist, saying that-
I think we’ve got a slide on this, actually, if they want to get it up.
If they can put it up. Roughly two thirds of the chief economists thought that the most likely intervention to bring down, not budget deficits, but the level of debt, was inflation, sustained inflation. And it’s one of many things that can be done outside of the hard work.
And so it has this appeal that, well, that’s an easier approach. But as we’ve seen, inflation is not appealing in public, because that’s how fiscal dominance works. In the short run, you try to push down interest rates in order to make government borrowing less expensive.
But in the long run, the mechanism to bring down the debt is higher inflation. It reduces the real value of the debt. And so first, in inflation, we have found to be enormously unpopular, just on its own.
And then secondly, different countries structure their debt in different ways. And that has consequences for. how effective the reduction in the real debt, this mechanism can be.
Because imagine a country where all of the debt is very short run, where it’s all indexed or it’s all a floating rate. Well, then inflation doesn’t do anything to bring down the debt. Everything just rolls over at a higher rate.
So the idea people have in mind with this mechanism is that there’s a lot of long run nominal debt, which some countries have relatively more. Great Britain, the average maturity of their debt is 14 years. In the US,
It’s under seven years, isn’t it?
It’s under six years, 70 months. And so there’s much more short term debt. It’s lengthened slightly, but roughly 10% of the debt is floaters or tips indexed.
Another 20% is under a year. And so even if you have inflation at a high rate, it doesn’t move the real value of the debt very much, because there’s so much short term debt that would need to be rolled over.
I want to say something. Not only do I not believe that there is long run trade off in this thing. I think even in the short run, because monetary policy and central banks behavior, which is ultimately about price stability, which I agree, it brings about prosperity.
It’s the pillar for economic stability and ultimate growth. If you lose credibility, that trade off doesn’t exist even in the short run, because the curve just becomes steeper. And so even in the short run, you may not even gain that trade off.
but you are risking surely losing it for the long run. And then the pain in undoing or retreating back once you lose credibility is going to be a lot more painful in terms of fighting inflation once that credibility is gone.
I’ll just say, ladies and gentlemen, if you do want to get involved, just can you give me an idea if you’re actually interested in asking a question? Because we’ve got about 14 minutes left and I just want to carry on this conversation. If you do, just let me know.
Francois will come in. I’ll bring you in in a few moments time because you are… You should be on this panel as well, actually.
It should be me sitting down there and you up here, Francois. Okay, so that’s absolutely the key point, Amir, as well. And I’ll start off with Martin on this and I’ll work my way down.
There is a risk given what we are seeing, especially in the United States at the moment, and I’m sure all of you were parties to signatories to supporting J-PAL as well. Are you concerned about that trust, that credibility actually becoming a very big concern for the world’s most important economy still and for the Federal Reserve? Martin.
So, I mean, trust and credibility for central bank is absolutely crucial. And the only way to gain this trust is by delivering on the mandate, which is price stability. And this is something that is difficult to earn.
You have to earn it over years and build up this credibility. And unfortunately, it’s also very easy to lose. So central banks really have to take care to keep this credibility, deliver on the mandate so they can really lay the basis for prosperity and growth in an economy.
Do you fear that when J-PAL, if J-PAL is a whole sequence of events that could happen, we all know that, in May, when J-PAL is replaced as the chair of the Federal Reserve, do you feel that is going to be problematic for credibility and trust?
at the Federal Reserve?
Oh, I cannot comment on the Federal Reserve, of course.
Martin, did you sign that central bank document that was supporting?
I signed this document because central bank independence…
So, you do have those concerns?
Central bank independence is a very, very important concept just to enable central banks to deliver on their mandate. Central bank independence is not an aim or a mean, it’s itself. It’s something that you need to have to deliver on the mandate.
I’m going to go to Amir. You all can get yourself ready. Amir, and then Jan, then you.
I think safeguarding central bank independence is not just a legal issue, because I said it’s kind of the pillar of economic stability through price stability. I think there are several things that you want to think about. One was talked about accountability and building trust through communication.
That includes talking to the public, explaining your decision. They’re basically professional and they’re analytical about what you do. The second one is decentralized decision making.
So, it’s not just one person. That’s why we have monetary policy committee. It’s not one person.
And the third is institutional insulation. And you would like the governance to be one where those who are elected there are not synchronized with the political cycle.
Jan?
So, the Fed has many of those sort of institutions and the historical background that Amir refers to to try to insulate it from political intervention. But with the dual mandate, there’s always a conversation. And that’s where having a credible and trusted leader.
is incredibly important because there’s always, even within the Fed, a discussion. Especially now, labor markets are a little weaker, inflation is a little above the target.
This is the second mandate of maximum employment, for those who need to…
Yes, yes. And so even internally, there’s a discussion that has to be communicated very carefully and with clarity that the Fed is committed to both parts of the mandate. And as they communicated in the new framework, that when they’re in conflict, so when you’re worried about stagflation, for example, that the Fed will consider carefully the balance of the two.
So credibility and trust is especially important then because there’s not a rule. But I think Jay has had the trust, the respect of his colleagues, of people within the Fed and outside the Fed, and that has come through very quickly.
Before I come to Joachim, and then bring in Francois as well. I used to be a market participant. I’ve traded bund options for many years.
And I’ve just been a hack for 25 years. So I’m a layman. But why isn’t Scott Besant explaining to the President?
I’m sure we’ve all got that. Actually, if you wrote the trust in your central bank, and you continue these assaults on Lisa Kirk and Jay Powell and others, that actually the power of the central bank to control the longer end of the curve is diminished.
We just talked about this. This is kind of what you’re saying as well. Why aren’t these very smart ladies and gentlemen in the administration and on Wall Street who have great influence, why aren’t they holding greater sway and that these assaults continue?
It’s a very basic question that I have. Jan, I’m asking you.
Oh, I thought you were asking Joachim. I’ll ask Joachim next, but I was just kind of like, yeah. Well, I think that markets have communicated at times.
Around Liberation Day, there was a strong reaction from the market. And so I think there is that communication. Individuals certainly communicate, but for it to be heard is another step.
Okay, Jochen.
I have definitely no idea what the rationale behind this. And I. Genuinely, you’re looking at it.
And I never thought that I have to discuss in my career that the independence of the Fed is in danger. And this is a very dangerous discussion at all. And I do have to give the US administration this reminder.
It was the US that gave the Germans an independent central bank in 1948. And that was the starting point that Germany could grow over the past decades. And now we have to discuss the independence of the Fed.
Well, Jay Powell is an excellent central banker. He has a tremendous good track record over the past years. And we should be very, very cautious about the independence of central banks.
This is the DNA of good monetary policy.
I want to get another voice on now, if we could. I don’t know if we can get a microphone for Francois Villers de Gallo, who I’ve had the pleasure of speaking to many times over the years. And he’s a terrific panelist.
So he’s going to be our extra panelist right now. I don’t know if you can hear him. He’s a terrific panelist.
I just have to say, I obviously agree, Joachim, with what you just said about independence and Jay Powell. I agree with what my friends and colleague and Professor Eberle said, the way we act. This means we have the tools to act within our mandate, bottom line.
Can I raise a somewhat different question? And Joachim, you will not be surprised. Colleagues, not also.
It’s not about the way we act. It’s about the way we speak and the fields we speak about. Because for me the question of beyond the mandate could come there.
Should we speak about fiscal policy, about structural reforms and Draghi report in Europe? And why not international cooperation and the rule of law? And here there are very different traditions across the Atlantic, for example.
The Fed never speaks beyond its core mandate. In Europe we speak much more. We took the initiative with Joachim to call for structural reforms and the implementation of the Draghi report in Europe.
My personal view, but I would be interested to have the panel’s view, is that in such extraordinary times we should use our independence and our expertise at least to bring technical lights on this debate.
And we must accept that we are not the deciders because it’s beyond our mandate. We are not politicized, but we bring our expertise. But again, this is my personal view and this is for me a still more delicate question.
François, thank you. We’ll come to you in a few moments time. Amir, pick up on that.
I guess I have no choice because it’s part of the…
Well, you have a dual mandate in Israel, don’t you?
The mandate itself calls us as the economic advisor to the government. So literally on budget issues the Treasury Finance Ministry has to talk to us and I actually have to speak on budget issues. But I would say it’s better always to try to contain yourself wearing the economic hat.
For example, I spoke when the judicial issues changes were proposed in Israel. I said from an economic… there’s a long economic literature that speaks about the importance of the independence and strength of institution and how that is positively correlated with growth.
And we… I actually spoke about obviously a Nobel was given to about that recently. So so that’s a situation where I kind of spoke about, and that’s obviously related to, as central bank are an important institution, so their strength and independence is important.
So that’s an example where I spoke about the issue but from the vantage point of an economics.
Martin, I sense you’d feel more uncomfortable about that.
So should we speak about fiscal policy? I think Switzerland is a little bit a special case because public debt is relatively low and we have this fiscal rule, we call it the debt break rule. It’s in place since 2001 and it was really very important to keep debt low, the debt level low in Switzerland on a federal level.
So generally this is what I say about the fiscal situation because there’s no reason for me to warn about the fiscal developments in Switzerland at this point.
Joachim, you come on this and then I’m gonna get this gentleman to get a question off to you. Very short answer.
I have a clear view here and I couldn’t agree more with Francois as always. I think, I believe we do have to speak about these things. I once said last year in a speech that in my classification, this is modern central banking because there are so many spillovers from fiscal to our mandate and the world changed dramatically over the past couple of years.
So I believe also central banks have to change. I know that there’s a thin line between mandate and maybe some people are saying this is outside of the mandate but I have the clear view here that there are so many spillovers back to our mandate that we have to speak about all these things.
This is our responsibility.
Yeah, and just before Jack comes in let me get this gentleman’s final question as well. I remember 10, 12 years ago, many of the speeches from Mr. Draghi specifically calling on countries to not only sort their fiscal house out but sort the restructuring out, things that he’s obviously since.
Double down on as well and for a long time Mario Draghi led the way saying you have to restructure We’re giving you this Draghi put you have to restructure and countries across Europe by and large ignored him.
Jan
Just a quick note that J-PAL in testimony before the Senate Banking Committee Did mention fiscal issues and his concern. This was some years ago And and it’s been an important issue and he mentioned exactly the interaction That you do and then of course whose statement a week ago Sunday Was very much about the mandate, but certainly not his normal way of communicating
Could you make it a very quick question because I know that I’m up against Simon I normally only go over by that three minutes. It’s not a question. It’s just a small statement
I sure so I agree with whatever my colleagues said, but your name sir, Martin Galstan I’m the governor of the Central Bank of Armenia. Thank you, sir the question is that After adopting inflation targeting if especially the flexible inflation targeting less and less countries face high inflations Because frameworks are in place and then those countries which face high inflation.
Those are because of the fiscal Problems that the government’s accumulate can central bank solve those problems working with government sometimes not often that is Not happen usually but we do have a very strong institution on our side.
Those are the markets and Then if we don’t have responsible governments Then the markets will punish those governments and then society will carry the costs and then central bank could have a dialogue
Yeah, I think that’s an incredible point. And that is the point where mr Trump has once been reined in as you said April last year. Does anyone want to pick up on that as a final point?
Well, I think we will see what happens tomorrow and then
Are you nervous about tomorrow’s speech So we’ll start at Martin and we’ll work our way down your Kim final question as well Do you have all the tools you need? would you like other tools in order to carry on operating and creating cohesive and reassuring monetary policy for for Switzerland and beyond?
We have all the tools that we need. It’s interest rates, it’s the exchange rate, and this is enough for us to safeguard this price stability.
One more time, do you think you’re gonna be using any of those tools in the next 24 hours? No. I’m taking that as a no comment.
Aaron, Amir.
I think we have ample tools. One always at least think about how to expand, sharpen your toolbox, but I think we’ve proven over the last couple of years that we know how to manage crises and also deliver price stability in a pretty volatile environment.
Is the U.S. about to lose some of its key tools, independence?
I don’t think so.
You’re optimistic? I’m optimistic, but it’s not going to be easy. Yeah.
And Joachim, final word. Well, if something is necessary, the euro system is prepared. I’d like to thank the contribution from the governor of the Central Bank of Armenia, it was?
Armenia. Armenia, I beg your pardon, sir. And from Francois Villareal as well.
Joachim Nagel, Amir Yaran, Martin Schlegel, thank you. You appreciate I had to try twice. And Janice Eberle, love you to see you all.
Thank you very much indeed for your time. Thank you. Thank you.
Goodbye.
Joachim Nagel
Speech speed
159 words per minute
Speech length
1052 words
Speech time
395 seconds
The euro system has enriched its toolkit over 25 years and has all necessary instruments to conduct monetary policy and achieve the 2% target
Explanation
Nagel argues that the European Central Bank system has developed comprehensive tools over the past 25 years and demonstrated flexibility in conducting monetary policy. He believes they have everything necessary to fulfill their mandate of achieving price stability at 2% inflation.
Evidence
Over the last three years, the ECB showed flexibility and did everything necessary to try to achieve their 2% target
Major discussion point
Central Bank Tools and Capabilities
Topics
Economic
Agreed with
– Janice Eberly
– Amir Yaron
– Martin Schlegel
Agreed on
Central banks have adequate tools to fulfill their mandates
Disagreed with
– Janice Eberly
– Martin Schlegel
Disagreed on
Balance sheet policy framework necessity
Germany’s large fiscal package is necessary for defense and infrastructure, and the ECB’s best contribution to growth is fulfilling its price stability mandate
Explanation
Nagel supports Germany’s significant fiscal spending package for defense and infrastructure needs during extraordinary times. He maintains that the ECB’s primary contribution to economic growth is achieving price stability, which creates the foundation for all other positive economic outcomes.
Evidence
The fiscal package will have positive effects starting this year with more visible impacts in 2027; price stability is the condition for achieving higher growth
Major discussion point
Fiscal Policy and Government Relations
Topics
Economic
Agreed with
– Martin Schlegel
– Amir Yaron
Agreed on
Price stability is the primary mandate and foundation for economic growth
The independence of the Fed should not be questioned, as it was the US that gave Germany an independent central bank in 1948
Explanation
Nagel expresses strong concern about threats to Federal Reserve independence, noting the historical irony that the US established Germany’s independent central bank model. He emphasizes that central bank independence is fundamental to effective monetary policy and warns against dangerous discussions questioning this principle.
Evidence
The US gave Germans an independent central bank in 1948, which enabled Germany’s growth over past decades; Jay Powell has an excellent track record
Major discussion point
Central Bank Independence and Credibility
Topics
Economic
Agreed with
– Janice Eberly
– Amir Yaron
– Martin Schlegel
Agreed on
Central bank independence is fundamental and must be protected
Modern central banking requires speaking about spillover effects from fiscal policy due to dramatic changes in the world
Explanation
Nagel believes central banks must address fiscal policy issues because of significant spillover effects to their mandates. He argues that the world has changed dramatically, requiring central banks to evolve and speak about broader economic issues, even if some consider this outside their traditional mandate.
Evidence
There are many spillovers from fiscal policy back to the central bank mandate; the world has changed dramatically over the past couple of years
Major discussion point
Communication and Mandate Scope
Topics
Economic
Disagreed with
– Janice Eberly
– Martin Schlegel
Disagreed on
Scope of central bank communication beyond core mandate
Janice Eberly
Speech speed
128 words per minute
Speech length
1064 words
Speech time
495 seconds
The Fed has the same tools of monetary policy but lacks a clear framework for balance sheet policy, which is crucial for managing liquidity crises
Explanation
Eberly notes that while the Fed completed a framework review in 2020 and updated its approach for broader economic conditions, it still lacks a comprehensive framework for balance sheet policy. This is problematic given the importance of balance sheet tools for responding to liquidity crises and managing the Fed’s large balance sheet.
Evidence
The Fed’s balance sheet grew from 5% of GDP in 2005 to over 20% currently; concerns about responding to situations like the March 2023 regional banking crisis
Major discussion point
Central Bank Tools and Capabilities
Topics
Economic
Agreed with
– Joachim Nagel
– Amir Yaron
– Martin Schlegel
Agreed on
Central banks have adequate tools to fulfill their mandates
Disagreed with
– Joachim Nagel
– Martin Schlegel
Disagreed on
Balance sheet policy framework necessity
The Fed has institutional safeguards but credible leadership is especially important given the dual mandate
Explanation
Eberly explains that the Fed’s dual mandate of price stability and maximum employment creates ongoing discussions that require careful communication. Credible and trusted leadership becomes crucial when the two mandates potentially conflict, as there’s no simple rule to follow in such situations.
Evidence
Current situation with labor markets slightly weaker and inflation slightly above target; Jay Powell has earned trust and respect of colleagues within and outside the Fed
Major discussion point
Central Bank Independence and Credibility
Topics
Economic
Agreed with
– Joachim Nagel
– Amir Yaron
– Martin Schlegel
Agreed on
Central bank independence is fundamental and must be protected
Two-thirds of chief economists believe sustained inflation is the most likely mechanism to reduce debt levels, but this approach has significant limitations
Explanation
Eberly discusses survey results showing that most economists see inflation as the easiest way to reduce debt burdens, but she explains why this mechanism is problematic. The effectiveness depends on debt structure, and countries with more short-term or indexed debt won’t benefit from this approach.
Evidence
Survey data from chief economists; US debt has average maturity under 6 years with 10% floaters/indexed and 20% under one year; UK has 14-year average maturity
Major discussion point
Fiscal Policy and Government Relations
Topics
Economic
Balance sheet policy concerns focus on responding to banking instability and liquidity issues, with the balance sheet growing from 5% to over 20% of GDP
Explanation
Eberly highlights concerns about how the Fed can respond to financial instability when it maintains a large balance sheet under the ample reserves framework. The challenge is managing specific liquidity issues at individual institutions while operating with a significantly expanded balance sheet compared to pre-crisis levels.
Evidence
Balance sheet growth from 5% to over 20% of GDP; March 2023 regional banking crisis and 2019 liquidity issues as examples
Major discussion point
Crisis Management and Market Interventions
Topics
Economic
The Fed traditionally never speaks beyond its core mandate, unlike European central banks which communicate more broadly
Explanation
Eberly notes the traditional difference in communication approaches between the Fed and European central banks. While European central banks often speak about broader economic issues like structural reforms, the Fed has historically limited its public communications to its core monetary policy mandate.
Evidence
Jay Powell mentioned fiscal issues in Senate Banking Committee testimony some years ago, and his recent statement was focused on the mandate
Major discussion point
Communication and Mandate Scope
Topics
Economic
Disagreed with
– Joachim Nagel
– Martin Schlegel
Disagreed on
Scope of central bank communication beyond core mandate
Amir Yaron
Speech speed
138 words per minute
Speech length
1235 words
Speech time
533 seconds
Interest rate policy sets monetary stance, liquidity tools repair market functioning, and targeted support should remain on the fiscal side
Explanation
Yaron advocates for clear separation between monetary and fiscal policy tools. He argues that interest rates should handle monetary policy, liquidity tools should address market functioning issues, and any targeted support or subsidies should be handled by fiscal authorities to avoid blurring the lines between monetary and fiscal policy.
Evidence
Israel’s announcement to sell up to 30 billion dollars of reserves during the war, with capped quantities and time-limited operations
Major discussion point
Central Bank Tools and Capabilities
Topics
Economic
Agreed with
– Joachim Nagel
– Martin Schlegel
Agreed on
Price stability is the primary mandate and foundation for economic growth
Independence is not just a legal issue but requires accountability, decentralized decision making, and institutional insulation from political cycles
Explanation
Yaron outlines the institutional framework necessary for central bank independence beyond just legal protections. He emphasizes the importance of professional communication, committee-based decision making rather than individual authority, and governance structures that don’t align with political election cycles.
Evidence
Importance of monetary policy committees rather than single-person decisions; governance structures insulated from political cycles
Major discussion point
Central Bank Independence and Credibility
Topics
Economic
Agreed with
– Joachim Nagel
– Janice Eberly
– Martin Schlegel
Agreed on
Central bank independence is fundamental and must be protected
The government listened to central bank recommendations during crisis times, implementing difficult fiscal consolidation in budgets
Explanation
Yaron describes how during the crisis following the October 7th attacks, the Israeli government heeded central bank advice on fiscal policy. Despite market pressure and high uncertainty about debt sustainability, the government implemented challenging fiscal consolidation measures in both 2024 and 2025 budgets.
Evidence
Government implemented difficult fiscal consolidation in both 24 and 25 budgets despite market concerns about debt sustainability
Major discussion point
Fiscal Policy and Government Relations
Topics
Economic
Used capped quantities and clear communication during the war crisis, selling only 8.2 billion of the announced 30 billion in reserves
Explanation
Yaron explains Israel’s crisis management approach during the war, using capped intervention amounts with clear communication to markets. The strategy proved effective as they only needed to use a fraction of the announced intervention capacity, demonstrating the power of credible commitment and clear communication.
Evidence
Announced up to 30 billion in FX interventions but only used 8.2 billion; maintained consistency with monetary policy by not lowering interest rates
Major discussion point
Crisis Management and Market Interventions
Topics
Economic
Central banks should contain themselves to economic analysis when addressing broader issues, such as institutional strength and independence
Explanation
Yaron advocates for central banks to speak on broader issues but from an economic perspective rather than political one. When addressing Israel’s judicial reform proposals, he focused on economic literature showing the correlation between institutional strength and economic growth, maintaining an analytical rather than political stance.
Evidence
Referenced economic literature and Nobel Prize work on the relationship between institutional independence and growth when discussing judicial reforms
Major discussion point
Communication and Mandate Scope
Topics
Economic
Martin Schlegel
Speech speed
151 words per minute
Speech length
793 words
Speech time
313 seconds
Central banks have sufficient tools including interest rates and FX interventions, with no rethink of central banking needed
Explanation
Schlegel argues that central banks should focus on their core mandate of price stability rather than expanding beyond it. He emphasizes that the Swiss National Bank has a narrow, clear mandate and sufficient tools including interest rates and foreign exchange interventions to achieve price stability, which is their primary contribution to economic prosperity.
Evidence
Swiss National Bank’s narrow mandate of price stability while taking due respect of the economy; use of interest rates and FX interventions
Major discussion point
Central Bank Tools and Capabilities
Topics
Economic
Agreed with
– Joachim Nagel
– Amir Yaron
Agreed on
Price stability is the primary mandate and foundation for economic growth
Disagreed with
– Janice Eberly
– Joachim Nagel
Disagreed on
Balance sheet policy framework necessity
Central bank independence is absolutely crucial and the only way to gain trust is by delivering on the mandate of price stability
Explanation
Schlegel emphasizes that trust and credibility are fundamental for central banks and can only be earned through consistent delivery on the price stability mandate. He warns that while credibility takes years to build, it can be lost very easily, making it essential for central banks to maintain focus on their core responsibilities.
Evidence
Trust and credibility are difficult to earn over years but easy to lose; central bank independence is necessary to deliver on mandate
Major discussion point
Central Bank Independence and Credibility
Topics
Economic
Agreed with
– Joachim Nagel
– Janice Eberly
– Amir Yaron
Agreed on
Central bank independence is fundamental and must be protected
FX interventions are conducted solely for monetary policy purposes, not to give exporters unfair advantages or prevent current account adjustments
Explanation
Schlegel clarifies that Swiss National Bank’s foreign exchange interventions are strictly for monetary policy purposes when inflation is too low or too high. He emphasizes that interventions are not designed to provide competitive advantages to Swiss exporters or manipulate trade balances, but solely to maintain price stability.
Evidence
Joint statement with US confirmed existing practices; interventions occur when inflation is too low (dampening appreciation) or too high (selling foreign currency)
Major discussion point
Crisis Management and Market Interventions
Topics
Economic
Steve Sedgwick
Speech speed
198 words per minute
Speech length
2659 words
Speech time
802 seconds
Central banks should focus on their core mandate and maintain independence to ensure economic stability
Explanation
Sedgwick raises concerns about central banks facing growing pressure from multiple directions including digital currencies, trade-offs between growth and inflation, and politicization of their role. He questions whether central banks have adequate tools to cope with these extraordinary challenges while maintaining their independence and credibility.
Evidence
Central banks facing pressure from digital currencies, trade-offs between growth and inflation, and political interference; specific mention of attacks on Jay Powell and Lisa Cook
Major discussion point
Central Bank Independence and Credibility
Topics
Economic
The eurozone faces challenges as a monetary union without fiscal union, requiring adherence to stability and growth pact rules
Explanation
Sedgwick highlights the fundamental structural challenge of the eurozone operating as a monetary union without fiscal integration. He questions the effectiveness of fiscal rules when they are frequently broken without consequences, pointing to widespread non-compliance with deficit and debt targets across member countries.
Evidence
Rules of stability and growth pact are broken across eurozone countries; deficits in France, US (6%), and other countries exceed targets
Major discussion point
Fiscal Policy and Government Relations
Topics
Economic
Crisis management requires targeted tools with clear communication to prevent blurring lines between fiscal and monetary policy
Explanation
Sedgwick explores the challenges central banks face in crisis situations, particularly regarding the use of balance sheet tools and market interventions. He questions how central banks can maintain clear boundaries between monetary and fiscal policy while responding effectively to various crisis scenarios.
Evidence
Discussion of capped quantities in interventions and market reactions; balance sheet policy growing in importance
Major discussion point
Crisis Management and Market Interventions
Topics
Economic
Audience
Speech speed
161 words per minute
Speech length
378 words
Speech time
140 seconds
Central banks should speak about fiscal policy and structural reforms in extraordinary times, using independence and expertise to provide technical insights
Explanation
An audience member (Francois) argues that while central banks should act within their mandate, they should use their independence and expertise to speak about broader issues like fiscal policy and structural reforms during extraordinary times. They suggest this involves providing technical analysis while accepting they are not the final decision makers on these issues.
Evidence
European central banks’ initiative to call for structural reforms and implementation of the Draghi report; different traditions between Fed and European central banks
Major discussion point
Communication and Mandate Scope
Topics
Economic
Agreements
Agreement points
Central bank independence is fundamental and must be protected
Speakers
– Joachim Nagel
– Janice Eberly
– Amir Yaron
– Martin Schlegel
Arguments
The independence of the Fed should not be questioned, as it was the US that gave Germany an independent central bank in 1948
The Fed has institutional safeguards but credible leadership is especially important given the dual mandate
Independence is not just a legal issue but requires accountability, decentralized decision making, and institutional insulation from political cycles
Central bank independence is absolutely crucial and the only way to gain trust is by delivering on the mandate of price stability
Summary
All central bankers unanimously agree that independence is essential for effective monetary policy, with each emphasizing different aspects – historical importance, institutional safeguards, structural requirements, and trust-building through mandate delivery
Topics
Economic
Central banks have adequate tools to fulfill their mandates
Speakers
– Joachim Nagel
– Janice Eberly
– Amir Yaron
– Martin Schlegel
Arguments
The euro system has enriched its toolkit over 25 years and has all necessary instruments to conduct monetary policy and achieve the 2% target
The Fed has the same tools of monetary policy but lacks a clear framework for balance sheet policy, which is crucial for managing liquidity crises
Interest rate policy sets monetary stance, liquidity tools repair market functioning, and targeted support should remain on the fiscal side
Central banks have sufficient tools including interest rates and FX interventions, with no rethink of central banking needed
Summary
All speakers agree that central banks possess the necessary tools, though Eberly notes specific concerns about balance sheet policy frameworks while others express confidence in their current toolkit
Topics
Economic
Price stability is the primary mandate and foundation for economic growth
Speakers
– Joachim Nagel
– Martin Schlegel
– Amir Yaron
Arguments
Germany’s large fiscal package is necessary for defense and infrastructure, and the ECB’s best contribution to growth is fulfilling its price stability mandate
Central banks have sufficient tools including interest rates and FX interventions, with no rethink of central banking needed
Interest rate policy sets monetary stance, liquidity tools repair market functioning, and targeted support should remain on the fiscal side
Summary
Central bankers agree that maintaining price stability is their core responsibility and the best contribution they can make to overall economic prosperity and growth
Topics
Economic
Similar viewpoints
Both believe central banks should address broader economic issues beyond their traditional mandate, but maintain an analytical rather than political approach when doing so
Speakers
– Joachim Nagel
– Amir Yaron
Arguments
Modern central banking requires speaking about spillover effects from fiscal policy due to dramatic changes in the world
Central banks should contain themselves to economic analysis when addressing broader issues, such as institutional strength and independence
Topics
Economic
Both emphasize that foreign exchange interventions must be clearly targeted, time-limited, and conducted solely for monetary policy purposes rather than competitive advantage
Speakers
– Amir Yaron
– Martin Schlegel
Arguments
Used capped quantities and clear communication during the war crisis, selling only 8.2 billion of the announced 30 billion in reserves
FX interventions are conducted solely for monetary policy purposes, not to give exporters unfair advantages or prevent current account adjustments
Topics
Economic
Both recognize the complex relationship between fiscal and monetary policy, with Eberly highlighting the limitations of using inflation to reduce debt and Yaron demonstrating successful fiscal-monetary coordination
Speakers
– Janice Eberly
– Amir Yaron
Arguments
Two-thirds of chief economists believe sustained inflation is the most likely mechanism to reduce debt levels, but this approach has significant limitations
The government listened to central bank recommendations during crisis times, implementing difficult fiscal consolidation in budgets
Topics
Economic
Unexpected consensus
Support for broader central bank communication beyond traditional mandate
Speakers
– Joachim Nagel
– Amir Yaron
– Audience
Arguments
Modern central banking requires speaking about spillover effects from fiscal policy due to dramatic changes in the world
Central banks should contain themselves to economic analysis when addressing broader issues, such as institutional strength and independence
Central banks should speak about fiscal policy and structural reforms in extraordinary times, using independence and expertise to provide technical insights
Explanation
Unexpectedly, there was consensus that central banks should speak about broader economic issues beyond their traditional mandate, contrasting with the traditional Fed approach of limiting communication to core monetary policy
Topics
Economic
Universal concern about threats to Federal Reserve independence
Speakers
– Joachim Nagel
– Janice Eberly
– Martin Schlegel
Arguments
The independence of the Fed should not be questioned, as it was the US that gave Germany an independent central bank in 1948
The Fed has institutional safeguards but credible leadership is especially important given the dual mandate
Central bank independence is absolutely crucial and the only way to gain trust is by delivering on the mandate of price stability
Explanation
The unanimous and strong defense of Fed independence by international central bankers was notable, with Nagel particularly emphasizing the historical irony of questioning US central bank independence
Topics
Economic
Overall assessment
Summary
The panel showed remarkable consensus on fundamental principles of central banking: the critical importance of independence, the adequacy of current monetary policy tools, and the primacy of price stability. There was also unexpected agreement on the need for broader communication about economic issues beyond traditional mandates.
Consensus level
High level of consensus on core principles with nuanced differences in implementation approaches. This strong agreement among international central bankers reinforces the global commitment to independent monetary policy and suggests coordinated resistance to political interference in central banking.
Differences
Different viewpoints
Scope of central bank communication beyond core mandate
Speakers
– Joachim Nagel
– Janice Eberly
– Martin Schlegel
Arguments
Modern central banking requires speaking about spillover effects from fiscal policy due to dramatic changes in the world
The Fed traditionally never speaks beyond its core mandate, unlike European central banks which communicate more broadly
Central banks have sufficient tools including interest rates and FX interventions, with no rethink of central banking needed
Summary
Nagel advocates for expanded central bank communication about fiscal spillovers as ‘modern central banking,’ while Eberly notes the Fed’s traditional restraint in speaking beyond its mandate, and Schlegel argues against any rethinking of central banking, emphasizing focus on core mandate only.
Topics
Economic
Balance sheet policy framework necessity
Speakers
– Janice Eberly
– Joachim Nagel
– Martin Schlegel
Arguments
The Fed has the same tools of monetary policy but lacks a clear framework for balance sheet policy, which is crucial for managing liquidity crises
The euro system has enriched its toolkit over 25 years and has all necessary instruments to conduct monetary policy and achieve the 2% target
Central banks have sufficient tools including interest rates and FX interventions, with no rethink of central banking needed
Summary
Eberly identifies significant gaps in balance sheet policy frameworks as a major concern, while Nagel and Schlegel express confidence that existing tools are sufficient for their mandates.
Topics
Economic
Unexpected differences
Effectiveness of fiscal rules enforcement
Speakers
– Steve Sedgwick
– Joachim Nagel
Arguments
The eurozone faces challenges as a monetary union without fiscal union, requiring adherence to stability and growth pact rules
The euro system has enriched its toolkit over 25 years and has all necessary instruments to conduct monetary policy and achieve the 2% target
Explanation
Sedgwick directly challenges the effectiveness of eurozone fiscal rules by pointing out widespread non-compliance without consequences, while Nagel maintains confidence in the system and insists that countries understand their responsibilities and will deliver on stable budgets. This disagreement is unexpected because it reveals a fundamental tension between the moderator’s skepticism about institutional effectiveness and the central banker’s institutional confidence.
Topics
Economic
Overall assessment
Summary
The main areas of disagreement center on the appropriate scope of central bank communication beyond core mandates, the adequacy of existing policy frameworks (particularly balance sheet policy), and the effectiveness of institutional rules and enforcement mechanisms.
Disagreement level
Moderate disagreement with significant implications. While speakers share fundamental agreement on core principles like independence and price stability, their differences on communication scope and policy frameworks reflect deeper philosophical divisions about central banking’s evolving role. These disagreements could impact policy coordination and public communication strategies, particularly in crisis situations where clear, consistent messaging across central banks is crucial.
Partial agreements
Partial agreements
Similar viewpoints
Both believe central banks should address broader economic issues beyond their traditional mandate, but maintain an analytical rather than political approach when doing so
Speakers
– Joachim Nagel
– Amir Yaron
Arguments
Modern central banking requires speaking about spillover effects from fiscal policy due to dramatic changes in the world
Central banks should contain themselves to economic analysis when addressing broader issues, such as institutional strength and independence
Topics
Economic
Both emphasize that foreign exchange interventions must be clearly targeted, time-limited, and conducted solely for monetary policy purposes rather than competitive advantage
Speakers
– Amir Yaron
– Martin Schlegel
Arguments
Used capped quantities and clear communication during the war crisis, selling only 8.2 billion of the announced 30 billion in reserves
FX interventions are conducted solely for monetary policy purposes, not to give exporters unfair advantages or prevent current account adjustments
Topics
Economic
Both recognize the complex relationship between fiscal and monetary policy, with Eberly highlighting the limitations of using inflation to reduce debt and Yaron demonstrating successful fiscal-monetary coordination
Speakers
– Janice Eberly
– Amir Yaron
Arguments
Two-thirds of chief economists believe sustained inflation is the most likely mechanism to reduce debt levels, but this approach has significant limitations
The government listened to central bank recommendations during crisis times, implementing difficult fiscal consolidation in budgets
Topics
Economic
Takeaways
Key takeaways
Central banks have sufficient tools to manage current challenges, including interest rates, balance sheet policies, and FX interventions, with no fundamental rethink of central banking needed
Central bank independence is crucial for maintaining credibility and delivering on price stability mandates, requiring institutional safeguards and clear communication
The distinction between monetary policy tools (interest rates, liquidity support) and fiscal policy interventions must be maintained to prevent blurring of responsibilities
Crisis management requires targeted, time-limited interventions with clear communication and capped quantities to maintain market confidence
Modern central banking may require speaking about fiscal spillovers and structural reforms due to interconnected economic challenges, while staying within mandate boundaries
Fiscal dominance poses risks, with inflation being seen as a mechanism to reduce debt burdens, but this approach has significant limitations and credibility costs
The eurozone faces unique challenges as a monetary union without fiscal union, requiring adherence to stability and growth pact rules despite widespread violations
Resolutions and action items
Central banks committed to maintaining focus on their core mandates of price stability while using available tools effectively
Agreement on the importance of defending central bank independence through continued professional communication and institutional safeguards
Recognition that fiscal consolidation is necessary across countries, with central banks continuing to advocate for responsible government budgeting
Unresolved issues
Lack of clear framework for balance sheet policy at the Federal Reserve, particularly for managing liquidity crises with large balance sheets
Ongoing concerns about potential threats to Federal Reserve independence under new U.S. administration
Widespread violation of eurozone fiscal rules with unclear enforcement mechanisms
Debate over appropriate scope of central bank communication beyond core mandates
Rising fiscal deficits globally without clear path to sustainable consolidation
Market expectations for Swiss National Bank intervention amid currency appreciation pressures
Suggested compromises
Central banks can speak about fiscal and structural issues by framing discussions in economic/technical terms rather than political recommendations
Use of capped quantities and time-limited interventions to balance market support with avoiding fiscal dominance
Maintaining consistency between unconventional tools (like FX interventions) and core monetary policy stance
Balancing transparency in communication with necessary operational discretion in market interventions
Thought provoking comments
The biggest concern is actually less about the fiscal side, which really is directly about interest rates, whereas the balance sheet side is thinking about longer-term interest rates. But the concern there is what happens in, say, a March 2023 situation where there is instability and illiquidity in the banking system… And how can the Fed respond in a situation like that or in 2019 when the balance sheet is very large but you’re having specific liquidity issues at individual financial institutions?
Speaker
Janice Eberly
Reason
This comment was insightful because it distinguished between different types of central bank tools and their specific applications, moving beyond generic discussions of ‘having tools’ to examine the practical challenges of deploying them during crises. It highlighted a critical gap in the Fed’s framework review – the lack of clear guidelines for balance sheet policy during liquidity crises.
Impact
This comment shifted the discussion from theoretical tool availability to practical implementation challenges, prompting deeper exploration of balance sheet management and leading to discussions about capped quantities and market dynamics with other panelists.
It’s important to have in mind capped quantities or timely operations, so the lines between quasi fiscal and monetary don’t get blurred or don’t get blurred as minimal as possible… once they are boxed they prevent blurring the lines between fiscal and monetary
Speaker
Amir Yaron
Reason
This was thought-provoking because it introduced a concrete operational principle for crisis management – the importance of clearly defined, limited interventions to maintain the distinction between monetary and fiscal policy. It provided a practical framework for preserving central bank independence during emergencies.
Impact
This comment sparked a detailed exchange with the moderator about the risks of capped quantities, leading to Yaron’s real-world example of Israel’s $30 billion reserve intervention (using only $8.2 billion), which demonstrated how clear communication and limits can actually strengthen market confidence rather than invite speculation.
Roughly two thirds of the chief economists thought that the most likely intervention to bring down, not budget deficits, but the level of debt, was inflation, sustained inflation… But as we’ve seen, inflation is not appealing in public, because that’s how fiscal dominance works. In the short run, you try to push down interest rates in order to make government borrowing less expensive. But in the long run, the mechanism to bring down the debt is higher inflation.
Speaker
Janice Eberly
Reason
This comment was particularly insightful because it exposed the dangerous thinking behind fiscal dominance – the temptation to use inflation as a ‘solution’ to debt problems. It also demonstrated why this approach is both politically toxic and technically flawed, especially given the structure of modern government debt.
Impact
This comment fundamentally shifted the discussion toward the core tension between fiscal and monetary policy, prompting Amir Yaron’s strong rebuttal about credibility and leading to a deeper exploration of the risks to central bank independence.
Not only do I not believe that there is long run trade off in this thing. I think even in the short run, because monetary policy and central banks behavior… If you lose credibility, that trade off doesn’t exist even in the short run, because the curve just becomes steeper… but you are risking surely losing it for the long run.
Speaker
Amir Yaron
Reason
This was a powerful rebuttal that challenged the entire premise of using inflation to solve fiscal problems. It was insightful because it argued that even the theoretical short-term benefits of fiscal dominance disappear once credibility is lost, making it a lose-lose proposition.
Impact
This comment elevated the discussion to focus on credibility as the fundamental asset of central banking, directly leading to the extended discussion about threats to Fed independence and the importance of institutional safeguards.
I never thought that I have to discuss in my career that the independence of the Fed is in danger… It was the US that gave the Germans an independent central bank in 1948. And that was the starting point that Germany could grow over the past decades. And now we have to discuss the independence of the Fed.
Speaker
Joachim Nagel
Reason
This comment was deeply thought-provoking because it provided historical context that highlighted the irony of the current situation – the country that established the principle of central bank independence as a foundation for post-war prosperity was now threatening that very principle in its own institutions.
Impact
This historical perspective gave weight to the concerns about Fed independence and helped frame the discussion as not just a technical policy issue, but as a fundamental threat to the institutional foundations of economic stability.
Should we speak about fiscal policy, about structural reforms and Draghi report in Europe? And why not international cooperation and the rule of law?… My personal view… is that in such extraordinary times we should use our independence and our expertise at least to bring technical lights on this debate.
Speaker
François Villeroy de Galhau
Reason
This comment was insightful because it raised a fundamental question about the boundaries of central bank communication – whether ‘beyond the mandate’ refers to actions or also to speech. It challenged the panel to consider whether central banks have a responsibility to speak on broader economic issues that affect their ability to fulfill their mandates.
Impact
This intervention opened up an entirely new dimension of the discussion, leading to varied responses from panelists about how far central banks should go in public commentary, and highlighting different traditions between the Fed’s narrow communication approach and European central banks’ broader engagement.
Overall assessment
These key comments transformed what could have been a routine discussion about central bank tools into a nuanced exploration of the fundamental challenges facing modern central banking. The discussion evolved from technical questions about tool availability to deeper issues of institutional credibility, the boundaries between monetary and fiscal policy, and the appropriate scope of central bank communication. The comments created a logical progression: from practical tool implementation challenges, to the risks of fiscal dominance, to threats to independence, and finally to questions about the proper role of central bank voice in democratic societies. The real-world examples (Israel’s crisis response, the Fed’s framework review, threats to Fed independence) grounded theoretical discussions in current realities, making the conversation both intellectually rigorous and practically relevant. The interplay between these insights revealed the interconnected nature of central banking challenges – that technical tools, institutional credibility, and communication strategies are all part of a coherent framework for maintaining monetary policy effectiveness in extraordinary times.
Follow-up questions
How should central banks manage balance sheet policy, especially in crisis situations like March 2023 regional banking crisis?
Speaker
Janice Eberly
Explanation
The Fed’s 2025 framework review didn’t address balance sheet policy framework, leaving questions about how to respond to liquidity crises with ample reserves and large balance sheets
Can central bank balance sheets shrink given current banking and financial institution regulations?
Speaker
Janice Eberly
Explanation
With US balance sheet growing from 5% to over 20% of GDP, there are concerns about whether and how it can be reduced under current regulatory framework
How can central banks prevent blurring of lines between monetary and fiscal policy when using unconventional tools?
Speaker
Amir Yaron
Explanation
Important to maintain clear distinctions between liquidity operations (monetary) and solvency issues (fiscal) to preserve central bank independence and credibility
What is the difference between currency manipulation and valid FX interventions?
Speaker
Steve Sedgwick
Explanation
Need clarity on how central banks can intervene in FX markets for monetary policy purposes without being accused of currency manipulation by other governments
How effective is inflation as a mechanism to reduce government debt levels in different countries?
Speaker
Janice Eberly
Explanation
The effectiveness depends on debt structure – countries with short-term, indexed, or floating rate debt see less benefit from inflation reducing real debt burden
Should central banks speak about issues beyond their core mandate like fiscal policy and structural reforms?
Speaker
François Villeroy de Galhau
Explanation
Different traditions exist across regions – European central banks speak more broadly while the Fed focuses narrowly on its mandate, raising questions about appropriate scope of central bank communication
How can central banks maintain credibility and independence in the face of political pressure?
Speaker
Multiple speakers (Martin Schlegel, Amir Yaron, Joachim Nagel)
Explanation
Growing concerns about political interference with central bank independence, particularly regarding the Federal Reserve, require strategies to maintain institutional credibility
What will be the impact of potential Federal Reserve leadership changes on monetary policy credibility?
Speaker
Steve Sedgwick
Explanation
Concerns about potential replacement of Fed Chair Jerome Powell and its effects on central bank independence and market confidence
How can countries with high inflation due to fiscal problems be addressed when central banks have limited tools?
Speaker
Martin Galstan (Governor of Central Bank of Armenia)
Explanation
Question about whether central banks can solve inflation problems that stem from government fiscal irresponsibility, and the role of markets in disciplining governments
Disclaimer: This is not an official session record. DiploAI generates these resources from audiovisual recordings, and they are presented as-is, including potential errors. Due to logistical challenges, such as discrepancies in audio/video or transcripts, names may be misspelled. We strive for accuracy to the best of our ability.
Related event
World Economic Forum Annual Meeting 2026 at Davos
19 Jan 2026 08:00h - 23 Jan 2026 18:00h
Davos, Switzerland