Summary of Federal Reserve Chair Jerome Powell speaks at an ECB panel in Portugal — 7/1/2025

The panel at the ECB forum in Portugal on July 1, 2025, featured key central bank leaders discussing the evolving global economic landscape shaped by structural changes such as aging populations, digitalization, and the greening of economies. The discussion focused on the challenges these changes pose to monetary policy, inflation control, and economic stability amid geopolitical tensions and trade uncertainties.

Key points and analyses:

• Inflation and Monetary Policy:
  Inflation rates in major economies hover around or slightly above 2%, the target for many central banks. The ECB’s Christine Lagarde noted the target has been reached but emphasized ongoing vigilance due to geopolitical risks and economic fragmentation. Fed Chair Jerome Powell highlighted that U.S. inflation is close to target, with tariffs yet to significantly impact prices, leading the Fed to hold rates steady while monitoring developments. South Korea’s Governor Changri indicated tariffs tend to be deflationary for their economy and that their easing cycle will continue cautiously due to financial stability risks. Bank of England’s Andrew Bailey described recent UK inflation rises as largely due to administered prices, expecting them to be transitory without second-round effects.
• Trade Tariffs and Global Fragmentation:
  Panelists expressed concern about the impact of trade tariffs and protectionism on global growth, especially for export-reliant economies like South Korea. While some supply chain adjustments are underway, fragmentation poses risks to global economic activity. There was consensus that fragmentation would be detrimental, emphasizing the need for multilateral governance to address underlying issues.
• Neutral Rates and Policy Restrictiveness:
  The concept of neutral interest rates was debated, with all panelists agreeing it is a useful theoretical tool but less relevant amid current shocks and uncertainties. Most agreed policy is currently restrictive but expected to become less so as economies cool.
• Scenario Analysis and Risk Management:
  The ECB and Fed discussed increasing use of scenario analysis to better manage uncertainty and communicate risks, though public communication of scenarios remains complex and challenging.
• Currency and Reserve Status:
  Despite recent fluctuations, there was no consensus that 2025 marks a pivotal shift in the U.S. dollar’s reserve currency status. The panelists noted the importance of safe asset supply and highlighted ongoing investor interest in alternatives, but transitions would be gradual.
• Digital Currencies and Stablecoins:
  Concerns were raised about stablecoins potentially undermining monetary sovereignty and the public good of money. Regulatory frameworks are evolving, with emphasis on ensuring stablecoins meet the critical tests of money, while central bank digital currencies (CBDCs) remain under cautious development.
• Financial Stability and Broader Risks:
  The new chair of the Financial Stability Board, Andrew Bailey, underscored the importance of monitoring vulnerabilities in the financial system amid uncertainties. Panelists also expressed concern about the influence of artificial intelligence on public opinion and data integrity, highlighting the need for vigilance.
• Fiscal Policy and Public Finances:
  Powell reiterated that U.S. fiscal policy is on an unsustainable path, emphasizing the need for timely corrective measures, though central banks do not comment directly on fiscal policy.
• Personal Reflections and Challenges:
  Panelists shared what keeps them awake at night, ranging from structural economic changes and inflation control to geopolitical risks and the integrity of data. They emphasized the importance of humility, non-political policymaking, and focusing on delivering price stability, maximum employment, and financial stability.
• Outlook and Advice for Successors:
  Leaders expressed hopes to hand over stable economies to successors and advised careful management of balance sheets and policy tools amid ongoing uncertainties.

Presenters and Contributors:

• Christine Lagarde, President, European Central Bank
• Jerome Powell, Chair, Board of Governors, Federal Reserve System
• Kazuo Ueda, Governor, Bank of Japan
• Changri, Governor, Bank of Korea
• Andrew Bailey, Governor, Bank of England
• Francine Lacqua, Anchor and Editor-at-Large, Bloomberg Television (Moderator)

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