Bundesbank President Joachim Nagel Talks Risk of Recession

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A turn to the nation's capital, where world leaders are gathering for the IMF and World Bank Spring Meeting. Standing byes Lisa from the IMF headquarters with a special guest Coime. Morning Lisa, Good morning John.

I am here at the International Monetary Fund. It is a very different series of meetings. There aren't the same kinds of banners outside. It's a more subdued kind of feeling. And yet there are people collecting in Washington, DC for the first time since President Trump was inaugurated from all around the world, including the President of the Bundesbeg Jachim Nagel, who joins us now. I'm so glad to see you, and I want to start with this question of how different are these IMF meetings.

I guess this year. I guess this meeting is a very special one. I think the world economy is in a very delicate situation, and I will use this time here to learn a little bit more of what we can do to make it better, to make the economy running, have better unders standing what's going on, and there are a lot of There are really a lot of uncertainties.

One of the uncertainties. Is what's coming from the United States, in particular when it comes to tariffs, and how much that not only is a ramification for the US economy but also the global economy. How are you thinking about tariffs and how much they could depress growth? Say, in Germany, I.

Said a couple of months ago, when it comes to tariffs, I was of the opinion that this will trigger a lot of problems. And now we see how the problems evolved over the last couple of weeks and months, and so we have to have a better understanding how we can find, let me say, a kind of a compromise, a kind of a level playing field that brings us closer together. Because tariffs, these are so tervists, are not a good policy.

This is for sure. If they stay.

Is there a sense that it gives you more room to cut rates?

I think, first of all, I guess we have to take into account as central bankers also terrorists.

What does it mean for Europe?

I guess when we're talking about monetar policy in the eurosystem, we are on a good pass. I guess we can come close to bride stability over the course of this year. And this is good news, But there's a lot of uncertainty, and so we said last week because of that, we have to be very cautious. We have to wait what might come, how this uncertainty might evolve over the next week. So we have this meeting to meeting approach, and this, I guess is the best way to conduct monitor policy.

Since the beginning of last year, since a peak rate of four and a half percent at the ECB, you've cut rate seven times, a deposit rate of two and a quarter percent.

Is that neutral?

I will not speculate about neutral. I guess only in a hindsight we really know where neutral may be war or maybe is so I guess I have to look what the numbers, the figures are telling me, and there I see a lot of let me say good news when it comes to the inflation story. When we talk about economic crows, there's a lot of more uncertainty because tervices are not good for economic crows. So the latest news that we got from the IMF here we know that this is for Europe not good news.

We are in a stagnating situation.

So stagnation is the picture for d year, maybe recession for my country, for Germany, I cannot exclude a slide, let me say, recession dye. So this is what we have to work on, and monetor policy can only give us a good indication when it comes to a good direction when it comes to when it comes to stable prices.

The thread of tariffs has had an unexpected effect in market of actually weakening the dollar pretty substantially and strengthening the euro, which on the margins could actually be a disinflationary force, especially if you're important goods from overseas that would lead to lower effective prices in euros. Does that give you some breathing room to actually cut rates in response to potential weakness if that reduces some of the inflationary pressure.

I guess it's much too early to really come to the final conclusion. What does this tariff scenario mean for both sides of the Atlantic.

It seems to be, at least for the moment.

That the price of that tariff decision has to be paid in the United States and not in Europe. It seems to be that prices might go up much more in the United States compared to the European Union. When it comes to economic growth, I think the picture is pretty much the same. It's also a track on the economic growth here in the United States also in Europe. But I will not speculate about monitory policy and what we will do next in our next meeting.

How much are you watching what China is doing in terms of any trade barriers from the US causing them to export more of their productions, say to Germany and potentially lower prices. Is with respect to an abundance of exports. To the contrary, I.

Think China is an important player here, This is for sure. I guess it's not only for US the Europeans, let me say, a very uncomfortable situation, I guess also for China. And yes, there might be a scenario that they are looking for new markets, additional markets. Europe was already being a market for Chinese products, but now maybe they can maybe use your more compared to the past, as an additional market. But as I alluded to already, I think

It's much too early.

Just to add to the confusion and if you really are looking for any kind of compass and want to just change everything. Germany has been known for the zero break and this idea of not raising the deficit any capacity that has changed. We've been talking extensively about spending not only for defense but also for a whole host of different investments. Does that create more inflationary pressure? Does that just improve the growth picture? How does that sort of influence some of your modeling.

It is important to say that the role of Germany does not change, or that didn't change, because the stabilica anchor of.

Germany is still there.

So, as I said, I think we're living in a very complicated world, so it was necessary from a German perspective to do more regarding defense. Standing was also clear that we have to do much more when it comes to overcoming our infrastructure issue. So I guess this fiscal package is an important message to the world that Germany is doing its homework and we will improve over time. The economy will do much better over the next years, and.

For me as a center banker, this is at the end good news.

Well, but is it inflationary?

As fas as I can oversee the crown situation it will not be inflationary because we are coming out of a situation stagnation d year, maybe a kind of a recession, so it's not inflationary over the next course of the years. It's helpful to the economy, means more economic growth, and this is good news.

One thing that's happened over the past couple of weeks in particular, has been this fear of the United States losing its position as the currency of the world, as well as treasury is having a special status. And one thing that we've seen in the flow is a lot of money going into German boots as we're the new haven, and we're hearing a lot about diversification away from the United States into German assets.

Do you welcome that?

Do you think that would be positive?

Well, I think that it is not good news that there's a lot of let me say, now, regarding the safe haven of US treasuries. I think this is this is not good news. And you're absolutely right some of that money went to German bunds.

But all in all, we need the US.

Treasuring market is a good, stable market that gives a lot of let me say, certainty, and we should overcome this turbulent situation, and we should give back the US Treasury it is safe haven status because it is not helpful to all of us. If there are some doubts uncertainty around you, as here about the US treasuring market, it.

Wouldn't necessarily provide a support the same kind of privilege of spending I don't want to say recklessly, but with abundance in Germany, if Germany were to have that safe heaven status, I.

Think Germany and I alluded to that is the stability anchor of Europe. In Europe, German boons is a perfect example for or this and this will not go away. But we need a good US treasurer market. This is so important for the financial markets worldwide.

Speaking of which, you're going to be meeting with Jerome Powell, the FED chair at these meetings this week. What are you going to ask him?

I think Jarum Paul he is a great guy.

I really admire him what he did over his career in center banking.

And so we talk about the current situation.

Is so the current situation is potentially some sort of threat to central bank independence. I was taken off the table to some degree when President Trump yesterday in response to reporters, said that he has no intention of firing Veeder J. Powell and that this was media speculation that was Ronamock, not necessarily any real indication that he was planning to remove him before his term was up early next year. How concerned are you about threats to central bank independence?

So what is important to me is that independence of center banks. This is the DNA of center banking, of good center banking. So we shouldn't let me say question to a certain extent that this is maybe something that we could see in danger. So independence of central bank is of utmost importance.

And J.

Paul, he is a great center banker. He did a marvelous good job. And I guess this is also seen here in the United States.

Do you worry about some sort of financial instability if that continues to be called into question.

I will not speculate here, but in a scenario that you just mentioned, I cannot exclude such a scenario that there is then maybe a lot of globulence coming to the market if this is in question, and we should avoid that that shouldn't come as a realistic scenario, should avoid that this is of such a danger for the world economy, and so I really hope that there's enough understanding how dangerous this could be.

There's a question about what Europe can do to insulate itself and to draw itself closer, and that maybe some of the finance ministers and central banking chiefs can form something of a closer union to try to fortify themselves away from that type of volatility. Have you seen material steps toward that to try to establish that type of stability in the continent.

Absolutely, I think Europe has, I guess now better understanding that we have to do our homework becoming more resilient.

We have to implement all what.

To be discussed over the years, just allude to the captain market union, banking union, maybe a little bit more physical integration. So Europe has to stand together in these complicated times. But on top of that, also these meetings here, the IMF Meeting, Development Meeting, these two three days are so important to all of us to work on international cooperation Module letter. The leteralism of our work is so

In the United States, there seems to be a move away from financial debt or incurring more debt, and there's this concern about the fiscal deficit in a pretty significant way. There is a goal to try to retrench some of the spending over the past few years. In Europe, it seems like there is a move in the opposite direction. We talked about that with respect to Germany, that there

Let me disagree a little bit here because I do not see that there is a momentum that we're going away from physical discipline. We have still a good understanding in Europe that we are currently.

In this complicated situation.

So we have to do much more compared to defense spending to come compared to the past. But if that period is history, then we have to come back to physical discipline. And this is a and this is understood in Europe, and we will go back to that fiscal.

Discipline going forward.

Do you ever see a time when you can see zero rates again from the ECB or even negative?

Well, as I said, I will not speculate here.

I think we do what we have to do.

In our next meeting, and this is our mandate, this is our huge responsibility, and we did I guess pretty well over the past three years, and I'm very optimistic when it comes to prise stability that mission will be accomplished over the course of this year.

So do you think that you are going to get back down to two percent over the course of this year?

Absolutely?

Okay. And you don't think that necessarily there has to be any material change whatsoever to policy to get there.

No, there's no autopilot. I think we are decent center bankers. So we'll assess the data and then we will find maybe the right decisions.

Yakham Nagle, thank you so much for being with us. Jakhem Nagle, the president of the Bundesbank, and John. It is fascinating to see how much people are looking for a sensitivity from the United States at a time where a lot of their sense has been so much shaken.

Lisa, thank you great work. Has always appreciate the update on Europe. Careful what you're investing in. The Lights is from the FUNDUS Bank president there