Christine Lagarde Dodges Fed Balance Sheet Question at Davos 2019


Managing Director of the IMF, Christine Lagarde continues reacts interestingly to a question on the Fed’s balance sheet. Live from Davos, Switzerland, the world’s financial elite are discussing the growth outlook. For speculators in Canada’s small-cap markets, knowing which way the global winds are blowing is always important.

As Europe grabbles with its debt crisis, Lagarde weighs in on the US shutdown, pause in interest rates and the Fed’s balance sheet.

“The tightening is not going to be as accelerated as we had initially anticipated. So, its good news, bad news.”

Lagarde Dodges Fed Balance Sheet Question

When asked about concern surrounding the Fed’s unwinding of its balance sheet and what potential impact that may have on the markets, Lagarde responds:

“I would reserve judgment on that. I think it’s early on in the process.”

The Fed’s greatest accomplishment will be if it can reduce its balance sheet, while keeping the economy and interest rates in check. On the rise of populism, Lagarde explains,

“From my perspective, looking at the economy, looking at numbers, looking at performance, and forecasts, we are seeing more and more of an impact by politics.”

Furthermore,

“In a way, nonfinancial, noneconomic based considerations that have an impact on the economy.”

Lagarde points to politics and believes that if it weren’t for these politics the economy would be thriving even more.

Lastly, when the host asks about rising debt levels, Lagarde responds:

“I think of debt as a big bag of stones that you carry on your back. If you are asked to run faster because interest rates are rising because financing costs are going to be higher; well, that burden of debt that you carry on your shoulders is going to be more of drag and will be a deterrent going forward.”

Finally, she warns,

“Try to limit that growth of debt and move it down in the other direction. Make it down, not up in order to facilitate the short call that will inevitably come.”