Christine Lagarde, International Monetary Fund Managing Director, spoke with Bloomberg Television's Tom Keene today about the IMF’s forecast cut for U.S. GDP growth in 2014, how she views the U.S. economy on a global scale and French politics. She also explains why the IMF recommends an increase in the U.S. minimum wage to kick start growth.
Christine Lagarde said, "We have revised downward the 2014 numbers, but we do not think that it will be a downward spiral. We believe that 2015 will be up 3 percent."
According to Christine Lagarde, the U.S is still the locomotive of the global economy, "because it's one of those very large advanced economies and the largest economy in the world to this day. We also believe that some of the emerging markets are going to slow down as China has begun doing going forward."
*IMF doesn't see downward spiral in U.S. Economy
*U.S. is still a locomotive of global economy
*Emerging markets to slow down as China is doing
*IMF sees subdued inflation around world economy
*IMF trying to be even-handed on forecasts
*Inflation over fed target temporarily would be okay
Christine Lagarde: U.S. Still Engine for Global Growth
U.S. Economy Is Not in a Downward Spiral:
U.S. Should Increase the Minimum Wage:
Christine Lagarde: Watching French Economics, Not Politics:
TOM KEENE: This is an important day, not like the spring meetings that we had a number of weeks ago but really the bombshell of what we heard in the IMF's report on a small country they look at, one of the many hundreds they look at, called the United States of America. So let's begin with the managing director.
I was sitting in your press conference where you talked about a more subdued growth, a more subdued inflation. And Madame Lagarde, all I could think of was la nouvelle neutral, the idea of working for Bill Gross (ph) and PIMCO, which is to say that your experts within this building have really grabbed onto the idea of a more subdued economy.
Do you agree with Bill Gross that it will be years of a subdued U.S.?
CHRISTINE LAGARDE: Tom, we have revised downward the 2014 numbers, but we do not think that it will be a downward spiral. We believe that 2015 will be up 3 percent. However, we have revised our growth trend on an ongoing basis from where it was on average in the last 50 years or so, 3 percent to 2 percent. And we have done that on the basis of the aging of population and on the basis of lower productivity based on latest trends. So yes, we have -- we have revised downwards --
Christine Lagarde: -- but it does not mean that we are downbeat for 2014.
KEENE: Your Olivier Blanchard (ph) walked by earlier and I thought of his work in global macroeconomics. This is a profound moment. You are suggesting a more subdued potential GDP for all of the nations.
Is the U.S. still the locomotive of the global economy?
Christine Lagarde: Yes, it is, because it's one of those very large advanced economies and the largest economy in the world to this day. We also believe that some of the emerging markets are going to slow down as China has begun doing going forward.
So at the moment, the advanced economies are still driving the show because of the high base they start from and the growth percentage that they display.
KEENE: It is -- the phrase "subdued inflation" I found remarkable. We had a very good economic report today in the U.S.
What is the probability that the IMF gets this wrong and we turn out to have better outcome?
Christine Lagarde: Forecasting is not a science. Let's begin with that.
Second, there is a lot of uncertainty about some of those key numbers.
KEENE: There is.
Christine Lagarde: There is uncertainty. Let's face it, whether you look at unemployment, whether you look at employment, whether you analyze the participation rate -- all of that is not rocket science, maybe, but it's not -- that's clearly explainable for some of those numbers.
When we look at inflation, there is also what we see at the moment, which is subdued inflation around the world, particularly in the advanced economies.
And yet, there has been movement lately upward rather than downward. So that is the reason why we are eventually coming out with a recommendation that the Fed be on the communication and as active as it could in order to explain the uncertainty.
And when the uncertainty settles and fades, that the Fed can actually explain very clearly what is happening so that markets at the other end do not operate on the basis of that sort of uncertainty plateau that they seem to enjoy.
KEENE: You spent years in high school in Washington and a long tenure in Chicago in the legal business.
Here we have the IMF speaking to America about the minimum wage and the Earned Income Tax Credit. This comes as Eric Cantor, Republicans reform; you're a great student of American politics.
Why can't an international organization talk labor economics to America?
Why are you lecturing America on the minimum wage?