00:00Central bank governors and finance leaders will convene for the Jackson Hole Economic Symposium
00:04next week. Among them attending is Amir Yoram, governor of the Bank of Israel. He's stopping by
00:10on his way over to Jackson Hole. Governor, thank you so much for joining. Thank you for having me,
00:14Danny. This symposium happens at a time when we are just seeing yields across the globe hit
00:21generational high levels on the long end of the curve. I know you're currently engaging
00:24in a rate-cutting cycle, or at least you have cut rates, but more broadly,
00:28just how difficult of a rate environment do you and your peers find themselves in now?
00:33Well, we've been on a different cycle than the rest of the world, partly because of the war,
00:39and we've kept rates for quite a long time at a high level, at around 4.5%. But since November,
00:46we've had four cuts, and we're now at 3.5%, and the last two have been two consecutive ones in
00:52May
00:53and July, and our research department has penciled in that three percent in 12 months from now. But
01:01ultimately, we've had to manage huge uncertainty. And, you know, our next meeting, which is about
01:10two weeks, will be a live one because we are, you know, we're going to have to look at
01:15the developments on inflation. Inflation now is at one and a half percent,
01:19but it's going to go back up towards the center of our target at around two percent in the next
01:24few
01:25months. We just had very, you know, strong GDP numbers come in. The last quarter, the growth rate
01:34was at 15 percent, although there are some caveats there about certain segments being produced abroad.
01:41But generally, these are very strong numbers. So we are going to have to look at labor,
01:49inflation, geopolitical risks, fiscal risks, and all of these considerations will be brought into the
01:54table in the next meeting. And of course, what's going on in the rest of the world also influences us.
02:01How difficult is that for a smaller economy, which is very open, has a lot of global influences,
02:05to be engaging on this part of the cycle when the rest of the world, rest of the developed world,
02:10there are questions being asked whether they'll have to continue to raise rates.
02:13So first of all, Israel enjoyed kind of the fact that we have LNG. And so the rise in oil
02:21prices,
02:22to some extent, we've been immune from that. The main issue for us along the way has been shortage
02:29of labor. And we had to explain to the public, even though output is below its pre-war potential,
02:36we actually, in what's called positive output gap, because we just don't have labor and therefore we
02:42couldn't reduce interest rate along the way and because of the uncertainty. As, you know, reserve
02:50duty have somewhat subsided, there's a little bit more clarity and inflation due to our monetary policy
02:58has brought inflation successfully to be around two percent. We were able to do these cuts,
03:05while in the rest of the world, we've seen, you know, obviously inflation has gone up. And so we
03:11either see our cycles that are going up or at least not reducing the rates as they were expecting to
03:18do
03:19prior to the war. Well, the defense spending for a very obvious reason in Israel has surged,
03:25and Prime Minister Netanyahu also wants to increase that spending as well. The cost of financing,
03:31the cost of debt for government, especially as spending increases, how much of that is on your
03:35mind as you calculate policy? It is very important. Let me just first say the Israeli economy and the
03:42Israeli people have shown great resiliency throughout the war. You know, we've seen it in credit card
03:50expenditures, VC money coming in, export. It's part of the dynamic and agility of the economy. And in fact,
03:59the numbers I just said about GDP have brought GDP to be about just below one percent from its long
04:05-term
04:05pre-war trend. That, in reference to other wars, is a big accomplishment. The big fiscal challenge,
04:15however, ahead is managing what I call the fiscal trilemma. And any new entry government after the
04:22election will have to deal with it. And that is bringing Israel back on a path that is a declining
04:29debt,
04:30managing the defense expenditure. And obviously they will be derived partly from the map of security
04:36needs that will arise. And third, investing in growth expenditures, growth engines. And managing these
04:46three is going to be a difficult. With it, there are going to be issues like how do you bring
04:52the
04:52ultra-orthodox community back into the workforce? How do you draft them? These are social and political
05:00issues. But we have shown in the bank they have immense economic ramification as well.
05:07So you have some idiosyncratic issues that you just laid out that you have to deal with. But other ones
05:11that Israel is facing are things the entire world is at the moment. The impact of higher oil prices,
05:17even though Israel might be a little bit more insulated, the impact of AI. Israel is certainly a
05:21hub for AI innovation. As you go to Jackson Hole, what do you expect to be the dominating big picture
05:28issue that you and your peers really need to discuss and maybe have hard conversations about?
05:34I think part of it, AI is in the minds of everyone. Is it increasing productivity as we expect? Is
05:43it
05:43going to actually increase prices or actually ultimately we're going to see the gains of productivity
05:51lowering inflation? Which one is going to come at what phase? That's obviously going to be one issue.
05:57And the other ones are and related are financial markets. You mentioned the high yields. Where are
06:04they going? Why are they moving the way they are? Is it are they expressing actually growth? Are they
06:11expressing inflation? These are the type of issues that I think will be discussed along the meeting.
06:18The markets global and especially the American markets are starting to trying to grapple and understand
06:23what it means to have a Fed chair who doesn't communicate as much that doesn't give forward
06:28guidance. What does it mean for you and your peers as you try to understand what the Fed is doing
06:33and
06:33how that impacts your policy to have a difference in communication style? I think, you know, as uncertainty
06:40has moved up, you know, clearly in the last few years, forward guidance and a credible forward guidance becomes more
06:50difficult. And it's natural that more and more central banks have gone to use the word data dependent and are
06:58somewhat less committal about what they do in order to preserve the credibility, partly because reality is much more
07:06more uncertainty. Things moved in a very fast notion. We've seen days where oil, according to news, have
07:14dropped to into the 70s and then a few hours later developments, you know, take a U-turn and they
07:22change.
07:22So it's all understandable that one wants to be to maintain, first of all, credibility generally with forward
07:31guidance. I think each institution will have to kind of keep its particulars of how it does things.
07:38We try to provide, I would say, somewhat of a forward guidance, but again, maintaining a lot of flexibility
07:47in terms of making sure people understand that things are very uncertain. I even use the word,
07:54you know, we expect interest rate to be three percent maybe in a year from now, but that's not a
08:00promise.
08:00It's not a bond, et cetera. Regarding the U.S., we're obviously trying to figure out
08:06where the Fed is going. That was always true because it always impacts also the global economy and Israel as
08:15well.
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