G20 Finance Ministers and Central Bank Governors Meeting Communique 23-24 July 2016


The Global economy is recovering slowly though significant risks persist

“The global economic environment is challenging and downside risks persist, highlighted by fluctuating commodity prices, and low inflation in many economies. Financial market volatility remains high, and geopolitical conflicts, terrorism, and refugee flows continue to complicate the global economic environment..”

Brexit added to uncertainty but they are positioned to address the consequences.

“ the outcome of the referendum on the UK’s membership of the EU adds to the uncertainty in the global economy. Members of the G20 are well positioned to proactively address the potential economic and financial consequences stemming from the UK referendum. In the future, we hope to see the UK as a close partner of the EU.”

They are determined to see growth using all tools possible with clear communication of actions

“We are taking actions to foster confidence and support growth. In light of recent developments, we reiterate our determination to use all policy tools – monetary, fiscal and structural – individually and collectively to achieve our goal of strong, sustainable, balanced and inclusive growth…We will carefully calibrate and clearly communicate our macroeconomic and structural policy actions to reduce policy uncertainty, minimize negative spillovers and promote transparency.”

They promise to not use competitive devaluation & protectionism

“We reiterate that excess volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability…We reaffirm our previous exchange rate commitments, including that we will refrain from competitive devaluations and we will not target our exchange rates for competitive purposes. We will resist all forms of protectionism.

A steely response to excess steel capacity

“We recognize that excess capacity in steel and other industries is a global issue which requires collective responses… The G20 steelmaking economies will participate in the global community’s actions to address global excess capacity.”

Reaffirmed support for financial reforms including Basel III

“Recent market turbulence and uncertainty have once again highlighted the importance of building an open and resilient financial system. To this end, we remain committed to finalizing remaining critical elements of the regulatory framework and the timely, full and consistent implementation of the agreed financial reforms, including Basel III and the total-loss-absorbing-capacity (TLAC) standard as well as effective cross-border resolution regimes.”

The end of fossil fuel seems nigh as commitment to end them is reaffirmed.

“We reaffirm our commitment to rationalize and phase out inefficient fossil fuel subsidies that encourage wasteful consumption, over the medium term, recognizing the need to support the poor. Further, we encourage all G20 countries to consider participation in the voluntary peer review of inefficient fossil fuel subsidies that encourage wasteful consumption.

FOMC Press Conference June 2016

Expect continued gradual increases in the Fed funds rate

“Based on the economic outlook, the Committee continues to anticipate that gradual increases in the federal funds rate over time are likely to be consistent with achieving and maintaining our objectives. However, recent economic indicators have been mixed, suggesting that our cautious approach to adjusting monetary policy remains appropriate.”

Economic growth was relatively weak late last year and early this year

“Economic growth was relatively weak late last year and early this year. Some of the factors weighing on growth were expected. For example, exports have been soft, reflecting subdued foreign demand and the earlier appreciation of the dollar. Also, activity in the energy sector has obviously been hard hit by the steep drop in oil prices since mid-2014. But the slowdown in other parts of the economy was not expected. I”

We can’t take the stability of longer run inflation expectations for granted

“Our inflation outlook also rests importantly on our judgment that longer-run inflation expectations remain reasonably well anchored. However, we can’t take the stability of longer-run inflation expectations for granted. While most survey measures of longer-run inflation expectations show little change, on balance, in recent months, financial market-based measures of inflation compensation have declined.”

Vulnerabilities in the global economy remain

“Although the financial market stresses that emanated from abroad at the start of this year have eased, vulnerabilities in the global economy remain. In the current environment of sluggish global growth, low inflation, and already very accommodative monetary policy in many advanced economies, investor perceptions of, and appetite for, risk can change abruptly”

The Brexit is something that we discussed

” Brexit, the upcoming U.K. decision on whether or not to leave the European Union is something we discussed. And I think it’s fair to say that it was one of the factors that factored into today’s decisions, clearly this is very important decision for the United Kingdom and for Europe. It is a decision that could have consequences for economic and financial conditions in global financial markets.”

The neutral rate of interest rates is low by historical standards

” what we can see and what many econometric and other studies show is that the so called neutral rate namely the level of the federal funds rate that is consistent with the economy growing roughly at trend in operating near full employment, that rate is quite depressed by historical standards. ”

We’ve expected the effects of the financial crisis to fade but there are also more persistent factors like low productivity growth and aging societies that are depressing the neutral rate

“And I’ve often in my statements and remarks talked about headwinds that reflect lingering effects of the financial crisis. To the extent that there are headwinds, I think many of us expect that these headwinds would gradually diminish overtime and that’s a reason why you see the upward path for rates. But there are also more long lasting or persistent factors that may be at work that are holding down the longer-run level of neutral rates. For example, slow productivity growth, which is not just a U.S. phenomenon, but a global phenomenon. You know, obviously, there is a lot of uncertainty about what will happen to productivity growth, but, productivity growth could stay long for a prolonged time and we have an aging, aging societies in many parts of the world that could depress this neutral rate.”

The lower neutral rate may be part of the new normal

” The sense that maybe more of what’s causing this neutral rate to be low are factors that are not going to be rapidly disappearing but will be part of the new normal. ”

The labor market appears to have slowed down

“the labor market appears to have slowed down and we need to assure ourselves that the underlying momentum in the economy has not diminished. So, as I said, we will be carefully assessing data on the labor market to make sure that job gains are going to continue at a pace sufficient to result in further improvement in the labor market”

Don’t believe that their rate increase is responsible for any slowing

“I really don’t think that a single rate increase of 25 basis points in December has had much significance for the outlook. ”

We’re quite uncertain about where rates are heading

“Well, so I want to say again, we’re quite uncertain about where rates are heading in the longer term.”

No meeting is off the table

“Every meeting is live. There is no meeting that is off the table, that no meeting is out in terms of a possible rate increase. But, we really need to look at the data. And I can’t prespecify a timetable. So, I’m, you know, not comfortable to say it’s in the next meeting or two, but it could be, it could be, it’s not impossible. It’s not impossible that by July, for example, we would see data that led us to believe that we’re in a perfectly fine course, and that data was an aberration and other concerns would have passed. ”

We’re trying to make policy without taking politics into account

“we are very focused on assessing the economic outlook and making changes that are appropriate without taking politics into account. ”

Minutes are not changed after the fact in order to correct possible misconceptions

“the minutes are always–have to be an accurate discussion of what happened at the meeting. So, they’re not changed after the fact in order to correct possible misconceptions.”

There may be a case for helicopter money in extreme circumstances

“Now, whether or not in such extreme circumstances, there might be a case for, let’s say, coordination–close coordination with the central bank playing a role in financing fiscal policy. This is something that academics are debating, and it is something that one might legitimately consider. I would see this as a very abnormal extreme situation where one needs an all-out attempt and even then it’s a matter that academics are debating, but only in an unusual situation.”

When oil prices stabilize their effect on inflation dissipates

” Well, oil prices have had many different effects on the economy, and so, we’ve been watching oil prices closely. As you said, falling oil prices pull down inflation. You know, it takes falling oil prices to lower inflation on a sustained basis. Once they stabilize at whatever level, their impact on inflation dissipates over time. So, we’re beginning to see that happening. Not only have they stabilized, they have moved up some, and their inflation is–their impact on inflation is winning over time. But oil prices have also had a very substantial negative effect on drilling and mining activity that’s led to weakness in investment spending and job loss in manufacturing and, obviously, in the energy sector. “