Speaker 1: We were just talking, last time that I saw you, you were the French Minister of Finance. Great. And then you moved on IMF. And I came back. And you came back, and then now you are the head of the ECB, which is, for context, similar to what the Fed would be, I assume, for the United States. That's right. And you lowered interest rates as well. Yes, we started a little earlier, in June. OK, I didn't know it was going to go there right away. I didn't know we were going to do this right away.

Speaker 2: We only did 25. He did 50. You only did 25? But then we did it again. So that's 50-50.

Speaker 1: Do you guys talk? Do you say, I'm about to do 25, and he's like, well, I'm going to do 50 two months later and make you look silly? You don't coordinate?

Speaker 2: No. We coordinate with each other. But we don't coordinate.

Speaker 1: We don't. Now, is this, the basis points, and we all now, there's a certain oracle nature to we wait to see what the central banks will do, and they always talk in kind of coded, mysterious language. And then they say, 25 basis points, and we're like, yes. What is that? But is it now, is that the signal inflation has been defeated?

Speaker 2: It's not quite. We are getting there. We are almost at target. What are you pointing at? My target is 2%. I want to get to 2%. What is it now? It's 2.2. But I want to make sure that we are at 2 and that we stay at 2%, because that's regarded as sort of stable inflation, and we look at that in the medium term. So we don't want to have one month at 2%, and then another month at 2.6%. We want it to be steady, solid. At 2? At 2.

Speaker 1: And we're getting very close. Who chose 2? Who was the 2-chooser?

Speaker 2: You know, interestingly enough, that was way back, and I think New Zealand was one of those that started it.

Speaker 1: And we're all following New Zealand now. That's what this is. New Zealand one day went, you know what would be a good number? 2.

Speaker 2: Now, I think then all central bankers around the world thought, well, 2%, because then that leaves a little wiggle room to negotiate wages increases. We're not exactly sure the statistics are perfect. So there is, you know, room to maneuver on all accounts. And 2% is something that, you know, goes reasonably unnoticed as long as wages progress as well.

Speaker 1: Right. Although, when we say 2%, we've faced kind of a pretty large inflationary spike, so it seems like these higher prices have a certain stickiness that the corporations have gotten accustomed to, like, well, the supply chains are a little better and things have eased, but $10 for a taco and people are still paying it, so why not?

Speaker 2: But that's the big difference between the level of prices and the increase in prices. I see. So when you've had regular increases in prices, generally it doesn't move down. It stays at that level, and that's when you talk about a level of prices.

Speaker 1: Now, why is that? Because, so what caused the inflation in the first place? Do we have a handle on that? Yes.

Speaker 2: Okay. Shall we take the last big inflation wave that we had? No. No, no, but... No, okay. Yes. But as an example, okay. So what caused it? You had three components. One is, you had the worst pandemic ever since the 20s, the last 20s. That's right.

Speaker 1: So a shutdown of... Shutdown of... Now, that would seem to be deflationary because it would seem like demand would disappear.

Speaker 2: Well, some demand disappeared and some demand stayed, particularly when people continued to receive, you know, checks in the mail and had...

Speaker 1: The mistake was keeping people alive.

Speaker 2: No. No, no, no, no, no. I get it now. No, no. I get what's happening here.

Speaker 1: Jesus. All right.

Speaker 2: All right. Okay. So supply chain completely disrupted.

Speaker 1: Yes.

Speaker 2: First. Second, we had, at least in Europe, the worst war since the 40s.

Speaker 1: Still going on in Ukraine. Still going on in Ukraine.

Speaker 2: So energy, wheat... And terrible. Energy, wheat, all sorts of commodity prices went down, especially given that dear Mr. Putin anticipated that and weighed on energy prices. So they weighed on energy supply, so that prices started going up even before the war started. He had planned that all along. So energy prices were a big component in the inflation.

Speaker 1: So supply chain disruption. Yeah. Energy spike. No more energy. Now, that's in Europe. We did not have that to the same extent, I would assume.

Speaker 2: You had some of it, but not... Yeah. Okay. Yeah, right. Keep going. Because you have energy on site in the country. We don't have any energy sources.

Speaker 1: Oh, sure. You know why? Drill, baby, drill. That's... That's why we have a national anthem. That's what we... We sing it before every ball game. It's something we do. So that's two. We got two.

Speaker 2: What's the third one?

Speaker 1: I would say three.

Speaker 2: The pandemic, the war, and the energy prices. So the three of them just pushed prices up in a big way, and more so in Europe than in the U.S. Right. We went up... On average, in the Euro area, prices went up to 10.6%. You never hit the double digit. Right. At least on average. Now, in certain... I would imagine certain commodities... Yeah.

Speaker 1: I would imagine that certain commodities would go up faster than others, that they don't... It's not linear, I wouldn't imagine.

Speaker 2: No. No. And... But it has a dribbling effect. So if you have oil prices going up, it's going to have an impact on pretty much all other products because you find energy everywhere.

Speaker 1: So give me a sense. So oil prices go up. How long does it take for that to insinuate itself into the supply chain system and create that... Inflation. Yeah.

Speaker 2: That inflation. It moves relatively fast. Okay. So in a matter of, you know, four, six months, it's into the various prices. Where there is a lag, which is much longer, it's on wages. Wages take more time to respond to that increase in prices. And it's, you know...

Speaker 1: I don't know if you know this in America, wages have yet to respond. We're talking about from the 50s. Like, it's really... Wages don't keep up. It brings up an interesting point. So since the 80s, it feels like the economy flipped over to an investment economy. That's right. Rather than a labor economy.

Speaker 2: Much more capital intensive and the remuneration of capital was higher than the remuneration of labor. You're right. Correct. And it's been a long time.

Speaker 1: It's not just in the last 10 years. No. It seems like the 80s were really that period of deregulation. I agree. And then it sped up there. But our tools that we use, whether it's the Fed or, you know, quantitative easing or those kinds of things, are still working at that supply side level. In other words, like in 2008, we bailed out more on the corporate side rather than the people side.

Speaker 2: Well, we secured the financial system to make sure that deposits of all the customers around the world were not completely lost. So that was the key proposal. Make sure that the financial system doesn't collapse. And then you're right. There was particularly in the last, you know, six years, five years since 2019 when we started, we had COVID. We tried to keep the economy afloat. We tried to avoid that business goes down.

Speaker 1: With a more demand side stimulus. Yeah. Yeah. Yeah. And certainly in this country. Yeah. And that's where maybe the rubber meets the road. It feels like, from what I've heard of economists.

Speaker 2: Yeah. You want to dampen demand if you want to keep inflation down. Right. But at the same time, you increase demand by putting some fiscal fuel in the system.

Speaker 1: On the flip side, we kept people alive and in their homes. Like in 2008, when they decided on the quantitative easing and to give sort of that zero percent interest window and people were able to come in and borrow money at the corporate level. Right. Right. At all levels. Household as well. Household. Yeah. But there was a horrible recession. A ton of people lost their homes. Yeah. You know, it was crushing. Yeah. The lesson to me is stimulating on the demand side was a more efficient use of capital and it also had the moral bonus of covering like human needs. Yes. Yeah. Rather than... Yes. Yes. Yes. So why does that seem now so controversial? It's not controversial in my books. Well, because you're human. But these guys I'm talking to, they give me a whole like, that last trillion really screwed us for the next ten years. And I'm like, what are you talking about?

Speaker 2: Well, everything has to be reasonable and sensible. You don't want to overdo it to a point where you then have to sort of withdraw and sponge the liquidities that are out there. And that's the reason why at some stage you have to stop quantitative easing and you have to also stop the fiscal stimulus and support that you've given to the economy in hard times because times are getting better.

Speaker 1: Do the central banks have mechanisms that can be more responsive on that demand side, as you said, rather than it having to filter through the system more on that supply side?

Speaker 2: The first tool that we use is interest rates. That's the most efficient one and it's the one that has been traditionally used.

Speaker 1: You talked about... But almost certainly if you raise it, will dampen the labor market.

Speaker 2: Yeah. Yeah, yeah. And if you tighten, which is if you reduce the interest rates, if you cut, then it should stimulate the economy and it should encourage people having lower financing cost to go out, borrow, invest, and buy houses and things like that. Right.

Speaker 1: That's what should happen. I wonder, is there any school of thought that thinks, boy, we've got this thing flipped on its head and we would be such a more efficient and humane society if we stimulated more... Like I'm thinking about, and you tell me if this is the wrong way of thinking about it. Trump came in, $1.7 trillion tax cut. Most of it went to rich people. Cut the corporate tax rate from, I think, 35% to 21%. So that's a 14%. That's a huge amount of money deregulated a lot of industries. So I would think as a package, that's trillions and trillions and trillions of dollars. A lot of it went to stock buybacks. It doesn't trickle into wages and the labor market, but it does pop up our deficit, making us less able to withstand, I don't know, a pandemic because we feel like then we can't

Speaker 2: put that... I was a little bit scared when you talk about pandemic because I watched the interview that we did together in 2009. What did I say? Well, you said at the time, because we discussed the standing of the economy, and I kind of said things are getting better. And then you closed the interview saying, unless we have a global pandemic.

Speaker 3: I need to address something very quickly.

Speaker 1: To the camera, I just want to address something very quickly. When she says I said that, she is not suggesting all Jews gave us a global pandemic. What we're trying to do is America. And I only say that because there has been some confusion here in the United States. But exactly right. I'm wondering, as a central banker, is there a way to look at the economy? Less on the supply side. How do we get labor to benefit more efficiently from all that money?

Speaker 2: You have to... You know those things. You have two components, capital, labor. And you bring these together and you create value. The two have to be compensated. And for decades, capital has been better remunerated than labor. And the labor share in the value production has been reduced. Then it's a matter of give and take. So if the labor market is tight as it is now, it is for the labor to actually say, excuse me, I think that should be remunerated as well and probably better than it has for many, many years. Right. So it's a question of...

Speaker 1: Is there a way to do it?

Speaker 2: Negotiations, discussions and persistence.

Speaker 1: Right. Is there a better way? Because it seems like for corporate subsidies, they don't have to fight so hard. Like, it seems like labor has to really fight for that seat at the table, whereas the larger entities don't.

Speaker 2: The balance of lobbying forces is obviously skewed to one side.

Speaker 1: Right, right. In most countries. So you would recommend poor people get better lobbyists. That would be... What about this?

Speaker 3: How about this?

Speaker 1: Is there anything in corporate, like, when you talk about buybacks and it's all in stock, what if workers were automatically invested in that? I mean, some companies do that. I think the tech industry does a pretty good job of that, that, you know, when you get hired there, you're immediately...

Speaker 2: 401k is one way to deal with it. But it's a very small component, should be a lot bigger.

Speaker 1: Right. And I think when you forecast out, what I worry about is labor is kind of been on the back foot and it seems like AI is going to further erode labor's position. Is that something that you guys figure in?

Speaker 2: That is a big concern. And I think that the discussions that are taking place now, actually, in New York concerning the governance of AI around the world and how it should be enhancing workers' position, contribution to the economy, rather than replacing workers, is a vital discussion to be had. Who's having that? I think it's engineered by the United Nations and there is a group of, you know, thinkers and philosophers and experts in AI who are saying, watch out. Because if there is no global governance on that, just as we have global governance on nuclear, not perfectly complied with, but at least generally respected. At least there is...

Speaker 1: We're all still here. I'm worried about that. I happened to run into a couple of, like, leading lights of the AI movement. And I said, globalization, you know, really hit American manufacturing and we're still feeling it. And that's something that took decades to really play out.

Speaker 2: It also benefited the consumers. Don't forget that.

Speaker 1: No, no question. When you do that, we did get much cheaper... Refrigerator. Yes, yes, yes. But you know, that played out over years. And there are still areas where it's decimated and haven't been back. It seems like AI will do the same thing to the more white-collar movement, but it's going to do it much quicker. And I said, are you guys concerned about that? And the guy goes, and he's one of them big hitters in that, and he goes, no, we'll be good. And I was like, oh, we're all going to die. Like this is, this is crazy. Will you adjust?

Speaker 2: I don't think, I don't think we're going to die, but I think completely, well, we will at some stage. No, no, no. I understand.

Speaker 1: And by the way, me before a lot of people.

Speaker 2: But we should really be concerned about AI because where you are totally right is that it will affect all jobs. And those sort of white, white-collar jobs, which were not affected, will be affected. And we, we have to be prepared. We have to improve our skillset. We have to be able to master that tool and not be the servant and the object of that tool, because it is fast and it's transformative.

Speaker 1: Do you know what they told me? It's already smarter than us because it is, what they do is it takes the 10,000 sort of years of human achievement and it swallows it in like six hours.

Speaker 2: I'll tell you something. This morning I wanted to check the price of butter because I thought you were going to ask me, well, do you do you, do you do your grocery shopping? And did you notice that prices increase? What kind of an animal do you think I am?

Speaker 1: Christine Lagarde, I, how dare you, if I may say so, I know your butler does the shopping.

Speaker 2: So I check and I check with one of those terribly smart AI engine. I say, what was the price in 2019? What was the price in 2024? I get the answer. And it's totally skewed. I mean, it's cheaper now than it was in 2019. And my recollection is, uh-uh. So I tell this guy, this AI engine, I said, are you sure about your numbers? Can you check that? It comes back and says, oh, terribly sorry, we made a mistake. Yes, you're right. It's the other way around. So that tells me one thing. We have to be alert. We have to check the facts. We have to be, to exercise judgment. And we cannot be. Does it tell you that?

Speaker 1: Or does it tell you that AI is so far ahead of us that the plan was, I'm going to give the head of the European Central Bank the wrong butter figures, absolutely plummeting her career. She's in charge of stability of Europe. Europe is then plunged into chaos. 500 years of black death. Oh, AI has got us by the. You must be behind that. I probably am. The final question. So we're coming onto a period. People were talking about the soft landing. It's still been rough for consumers. Do you foresee within the next, you know, because I know these things take time, 12 months, 18 months, 24 months, a better stability building into this, obviously, government, without some sort of terrible catastrophe?

Speaker 2: Yes, I should think so. Why do I say that? Because I think that the tools have improved. The analytical models and tools that we use to anticipate and to try to measure are better. Because we've learned in the last few years more than we had in decades.

Speaker 1: And the stable 2% we're getting.

Speaker 2: And we know that uncertainty is going to be with us and we have to factor that in and make sure that we have tools to anticipate uncertainty, which is a big, big challenge.

Speaker 1: Sure. We're anticipating uncertainty here in about eight weeks, so I feel you. I feel you. Thank you so much for joining. It's always such a pleasure to see you.

Speaker 3: European Central Bank President Christine Lagarde. European Central Bank President Christine Lagarde.