Transcript

Transcript of a Press Briefing on the International Monetary Fund’s 2011 U.S. Article IV Concluding Mission Statement

June 29, 2011

Webcast of the press conference

MS. BECKMAN: Today we'll be hearing from Rodrigo Valdes, who is a Senior Advisor in the Western Hemisphere Department, John Lipsky, our Acting Managing Director, Nicholas Eyzaguirre, who is the Director of the Western Hemisphere Department, and Gian Maria Milesi-Ferretti, who is the Division Chief for the North America Division in the Western Hemisphere Department. Welcome to everybody who's here in the room and watching on our webcast at imf.org and the Online Media Briefing Center. We'll start with some opening remarks from Mr. Lipsky.

MR. LIPSKY: Thank you. Thank you very much, and thank you all for joining us today and welcome to this briefing on the 2011 U.S. Article IV Consultation, which as you know is the IMF's annual assessment of U.S. economic policies and prospects and their implications for the global economy. By the way, the full Staff Report will be published after the Executive Board discussion on the topic in late July. I should also take this opportunity before we get started to say of course this is an important day for the IMF. After yesterday's selection by our Executive Board of a very talented and capable new Managing Director for the IMF, Christine Lagarde, we are looking forward to welcoming her to the Fund on July 5, which will be her first day on the job here at Headquarters. And as I say, we're very much looking forward to welcoming her and looking forward to a very successful tenure here at the IMF where we face a number of important issues and want first and foremost to address successfully the challenges to the global economy.

Back to the issue at hand, which is the consultation with the U.S. We are also by the way in addition to our regular consultation report we will issue a report on the effects of U.S. policies on the rest of the world. This analysis is part of the special IMF effort to map the interactions between the large and systemic global economies. As you probably are aware, in addition to the United States this effort includes the Euro Area, Japan, China and the United Kingdom. These so-called ‘spillover reports’ are strengthening our analysis of multilateral aspects of economic and policy interactions in the wake of the global financial crisis. The current U.S. Article IV and the spillovers report is the last of the so-called ‘Big Five’ reports of the five economies I've just mentioned. The Fund will also release a summary spillover report, that is, aggregating the findings of all the five spillover reports following an Executive Board discussion in July. In the interim we have prepared a statement summarizing preliminary staff views, which have been distributed to you and I want to highlight the main messages before turning to your questions.

As we all know, the U.S. economic expansion remains only moderate. At the same time, there are significant challenges ahead that will need to be dealt with decisively if the expansion is to strengthen. The U.S. recovery and subsequent expansion have proceeded overall at a relatively slow pace, but according to IMF research, this represents a pattern that has often followed downturns that have been associated with financial crises and in particular have been associated with serious housing market weaknesses. At the same time, comprehensive policy support in the last two years has proved significant in our analysis. It has provided significant macroeconomic stimulus and thus has helped to avoid a much more serious decline in output and demand and has underpinned the recovery and the subsequent expansion.

Financial conditions are improving slowly and households have been reducing their indebtedness, but falling house prices and high unemployment rates will have hurt household balance sheets and dampened private demand growth. More recently rising energy prices have weakened real disposable income growth and has also tended to hold back consumption expenditures. But looking ahead we expect GDP growth to remain relatively modest at 2-1/2 percent overall in 2011, and about 2-3/4 percent in 2012, but that implies a notable acceleration relative to the 2-percent growth registered in the first half of this year. We anticipate that private demand will accelerate slowly at the same time that fiscal policy support is expected to be withdrawn. By implication of course this means that unemployment is going to decline relatively slowly, but at the same time inflation is expected to remain low.

The expansion could outpace our forecast if consumer confidence improves faster than we expect, but on the downside, still weak fundamentals pose risk to the housing markets, and as I've said earlier, that's been one element that has tended to dampen consumer confidence and consumer demand. Of course, other risks can be envisioned. For example, a loss of fiscal credibility could cause an increase in interest rates or even potentially a sovereign downgrade and that would have significant repercussions here and elsewhere. And that's why the process of fiscal consolidation, or one of the reasons why it's important even in the near-term.

But at the opposite extreme, an excessively frontloaded fiscal adjustment could hurt the recovery, and as we know, a worsening of financial turmoil in European sovereign and bank debt markets could hurt U.S. growth through financial sector linkages. In other words, the U.S. has a direct interest in the successful resolution of challenges elsewhere today, particularly in Europe.

The central challenge for U.S. authorities as suggested in my remarks so far, and in our analysis, is to develop a credible fiscal strategy that would put public debt back onto a sustainable path without hindering the ongoing recovery. The economic crisis has worsened public debt dynamics which also will be affected negatively by the impact of population age and rising healthcare costs over the medium-term. Thus priority should be to stabilize public debt to GDP ratio by mid-decade and gradually reduce it afterwards with adjustments starting in fiscal year 2012. A well-defined medium-term plan based on realistic macroeconomic assumptions would allow a smooth adjustment path attuned to the current cyclical position while containing market fears about unsustainable debt dynamics. The U.S. authorities plan a somewhat more frontloaded adjustment, but in either case, further measures will be needed to copy with demographic and health cost pressures after the middle of this decade in any case.

The overall fiscal effort to gradually reduce the debt to GDP ratio in the longer-term should obviously go beyond reducing non-security discretionary spending and should of course include reforming entitlement programs, reducing tax expenditures and introducing fundamental tax reforms. In the long-run, such tax system changes could even include the introduction of a national VAT or carbon taxes, but in any case, the effort should be made for classic tax reforming meaning broader-base, lower rates and simpler rules. Reforms in financial supervision and regulation also need strong implementation. In fact, implementing decisively the reform of financial regulation and supervision is a second important priority. The legislation passed in Congress last year was a major step forward. Key elements of the legislation have been the creation of a Financial Services Oversight Council, the FSOC, which is charged to identify and act upon emerging overall risk to financial stability. The strengthening of the resolution framework for systemic institutions and the imposition of tougher capital and liquidity requirements especially for systemically important institutions, so-called SIFIs, and the containment of systemic risks and improved transparency in derivative markets, are all additional tasks that will be under the overall umbrella oversight of the FSOC. These are all critically important tasks for this new institution and for the regulatory supervisory system in general.

Continued strong implementation of all these steps will be important, and among other things they will require appropriate funding to regulatory agencies. Reforms that would strengthen incentives for sound credit underwriting and clarify market rules including the role of government-sponsored enterprises and housing finance would lay the founds for sustainable private-sector securitization which is a critical source of financing for further economic growth and still need strengthening after the severe blows of the last few years. It will also be important to coordinate reforms internationally to help promote a level playing field and avoid distorting forces of regulatory arbitrage.

Turning to monetary policy, in our view the Federal Reserve has rather deftly managed the tradeoff between near-term support and medium-term credibility. It has suitably maintained an extraordinarily low level of policy rates, and it's expanded its balance sheet and signaled its intention to keep an accommodative stance for an extended period. Such a position, which likely will remain appropriate for quite some time, will serve to counteract the forthcoming fiscal drag on economic activity. And as we suggest, the fiscal adjustment is important, it should be moderated, it should be at the appropriate pace, but it will institute some near-term drag and that should be taken into account clearly in setting Federal Reserve policy. Of course, the Fed should remain vigilant to the risks of any potential unmooring of inflation expectations and should respond with decisive action if risks materialize in either direction, i.e., on inflation undershooting or overshooting the desired path. When the exit from the appropriate but supportive and accommodative policy stance becomes appropriate, which I should emphasize we do not expect to be the case any time soon, the Fed may start a gradual unwinding of its balance sheet at the same time. Short-term policy changes could serve to fine-tune monetary stimulus according to cyclical conditions around a set path for unwinding the Fed's balance sheet.

Of course, turning to broader consideration of spillovers, U.S. economic activity does have a global impact. For example, the United States provides the world's primary reserve currency, houses the largest financial market and traditionally has provided an important source of global growth, so clearly policy outcomes in the United States have important spillover effects on other countries. And one lesson from the 2008 crisis has been that these effects work their way primarily through financial challenges for all but the United States closest trading partners. Thus, for example, U.S.-based investment banks are key intermediaries of global dollar liquidity on which many foreign financial institutions depend. And in the fiscal area, potential growth spillovers on other countries from a credible fiscal consolidation in the United States are relatively small compared with those associated with the tail risk of a loss of confidence in debt sustainability. In other words, with regard to U.S. fiscal policy, there is an asymmetry in that the failure to deal credibly with the medium-fiscal fiscal challenges will be seen by the U.S.'s partners as a serious problem for their own stability especially as it would be transmitted through financial markets.

That brings us to the final topic, which is the issue of multilateral international cooperation in macroeconomic policy setting. We all know through the experience of the G-20 leaders' process beginning in the fall of 2008 that a multilateral approach to economic policy management has been as important to the recovery as it was in overcoming the crisis. In that regard, we welcome the United States authorities' leading role in multilateral fora including in the G-20's Mutual Assessment Process in the Framework for Strong, Sustainable and Balanced Growth. As our analysis that was presented to the Toronto Leaders Summit demonstrated, if the key countries approach macro policy setting in a coherent and cooperative way, the potential outcomes will be better for everyone, but it requires coherence of policy and implementation of the necessary adjustments. Going forward, the United States can contribute to global growth and to stability by anchoring its long-term fiscal path, by strengthening the United States financial sector, by continuing to resist protectionist pressures and by renewing efforts to secure the future of multilateral trade negotiations and continue to open a path toward growing international trade and financial linkages. In sum, we see a sustained even if a bit slow expansion going forward, but policymakers face significant challenges ahead in particular in the fiscal area and in the implementation of the new regulatory framework for the financial sector.

Let me stop here and my colleagues and I will welcome your questions. Thank you very much.

MS. BECKMAN: Please state your name and affiliation and turn on the microphone when you ask a question.

MS. WROUGHTON: Good morning. Lesley Wroughton from Reuters. I was wondering how great risk you see in your inflation research in the U.S. that could force the Fed to drop its current easy money policy. Another question, I was wondering what you think the U.S. considering Mr. Geithner's concerns about the Greek debt crisis and contagion, how do you think the U.S. can prepare for a possible weakening of that or a worsening of that crisis? Is there same way they can backstop money funds and anything that they can do?

MR. LIPSKY: Thanks. Let me address the second part first and then we'll turn to look at the inflation risks, or maybe I should make clear we think the inflation risks remain low given the moderate pace of adjustment of expansion, given the still significant margins of excess capacity, given the recent favorable developments in areas like energy prices, but I'll ask my colleague Rodrigo Valdes to address this in a second.

With regard to the Greek situation, perhaps you've all heard the latest news, positive news, that the Greek Parliament has adopted the austerity measures that were presented by the Greek government and form the bedrock of the adjustment process that is being supported by the so-called troika of the European Commission, the European Central Bank and the IMF.

I just want to make one point. This is often portrayed in the press as an austerity program. The heart of the program that was introduced in the Greek Parliament is a structural adjustment program that is designed to address in a fundamental way the basic problem of the Greek economy, which is the lack of competitiveness. By force that also will include fiscal adjustment, but the fiscal adjustment is a necessity given the very, very large deficit currently still being experienced in fiscal policy. Even now, even after the recent efforts it remains about 10 percent of GDP. So right now the focus is very clearly on success in implementing this program that's now been adopted by the Greek government that provides a real chance of making some very important contributions to improving both the performance and especially the outlook for a restoration of growth and stability in the Greek economy. And as my opening remarks suggested, this is clearly success and stability and improving the resilience and stability of the European economies is directly in the interests of the United States and Europe's other major partners. Maybe now we can move on strictly to the U.S. Rodrigo, do you want to make any further remarks about Fed policy?

MR. VALDES: Yes. As Mr. Lipsky mentioned, this is not a major risk in our report because there is quite a bit of slack in the economy. Of course, inflation has been trending up, both headline and core. On the side of the core, really there are a few items that explain quite a bit of this, and on headline is particularly the effects of oil prices. So as we mentioned before, the labor markets in particular will be very important to contain inflation going forward. We expect core inflation to soften a bit going forward. But having said that, of course all central banks have to remain always vigilant and in this case in particular inflation expectations as we mentioned in the statement are key. So far they have remained well anchored, but it's something that every day the Fed has to look at.

MS. WROUGHTON: Sir, would you say that the core inflation -- the acceleration of core inflation you talked about firming. Do you see this as transitory or something a little bit more fundamental?

MR. VALDES: It has an aspect of being transitory. For example, part of it reflects just the pass through of higher oil prices to item that are not excluded from headline. Others reflect more structural features. For example, rents have been going up and that reflects on the core. At the end, those would be higher price level effects. They don't need to translate into persistent high inflation unless they go through and change in wages, expectation, et cetera. If that happens, of course that changes completely the picture. But with the slacking labor market, the chances are relatively contained.

MR. TALLEY: Ian Tally, Dow Jones. To follow-up on Lesley's question, is there something that the U.S. can do to prepare for say in a few weeks the entire majority supports -- you all have outlined the risks of contagion so we're not speaking hypothetically, we're talking about IMF projections here. Is there something that the U.S. should do in terms of managing its risk? Just a technical question. The Fed's growth predictions are about .3 percentage points higher. They did adjust them down similarly to the IMF. I'm wondering what causes the discrepancy or the difference? I think they're saying 2.8 whereas the IMF is saying 2.5 for this year.

MR. LIPSKY: The difference in growth projections you're talking about?

MR. TALLEY: Correct. Yes.

MR. EYZAGUIRRE: Let me start with the second one. We see a second semester that is going to be more dynamic than the first one even though what you would need to get to 2.8 would be somewhat above what we are forecasting so we don't see the recovery of private domestic demand as dynamic as the administration. Going forward for 2012, in our baseline scenario we see some further acceleration to something like 2.7, but as John was saying, we see a quite moderate recovery down the road and firm at the same time. When it comes to managing contagion –

MR. TALLEY: I'm sorry if I may interrupt, before you move there, so it is an apples-to-apples comparison, that you all are using the same fundamentals? It's not like the World Bank GDP projection which I think uses a PPP weight or something like that.

MR. EYZAGUIRRE: That's for the world, but not for the U.S. It wouldn't make any difference. It's apples with apples.

MR. VALDES: The Fed uses Q4 numbers. Those are also -- and we usually report year-and-year average.

MR. LIPSKY: That's a technical thing, but you're right that generally the administration is a bit more optimistic in terms of growth than we are. And as compared to consensus as well, more cautious and hopefully we're wrong and they're right. In terms of contagion, contagion could issue from two sources. As is well known, money market mutual funds are exposed to Europe and the U.S. is in a relatively stronger position than Europe because as you know, financial markets there depend on the U.S. for dollar funding. In the case of the U.S., some financial intermediaries depend on these markets -- on mutual fund money markets for funding, but since you have the Federal Reserve here, the alternative source of financing is readily available. Now when it comes to the exposure of the asset side, I would ask my colleagues to elaborate more on that, but you have to really think in a big, big event to become more worried about it. It's really dangerous.

MR. MILESI-FERRETTI: The direct exposure of the U.S. banking system to the countries geographically, peripheral Europe, more affected by the crisis is relatively modest. The channel of transmission through money market mutual funds would be operative more dangerous in case the difficulties in peripheral Europe spill over to banks in core Europe because core European banks have significant dollar activity funded in good part by U.S. money market mutual funds. So to the extent that the turmoil does not spill over to core (inaudible) in money market mutual funds other things being equal would be less likely to occur. But if of course there is a spillover to core European banks, then you could see a resurfacing of tensions in U.S. money market mutual funds. But of course U.S. authorities are very well aware of that and the Federal Reserve is –

MR. EYZEGUIRRE: Right, but his question was more to what extent the financial system in the U.S. is exposed. It's true that under this very (inaudible) risk event that Gian Maria is portraying, mutual funds money market could be exposed, but that does not mean that the financial system is exposed itself because it's got alternative sources of funding and the asset exposure of U.S. banks to money markets mutual funds is limited as well.

MR. LIPSKY: Let's not miss the main point here. With regard to Greece it's dramatically in the interests of the Greek people to implement structural reforms and fiscal adjustment that will create the basis for stabilization and renewed growth through gaining competitiveness within the Euro Area. It's very much in the interests of their European partners to support that effort and make sure it's successful, and it's very much in the U.S. interest to support that effort and to make sure that it is successful.

I should say with regard to the difference I forecasts in the near-term, really these are quite small and they will turn on really an interpretation for example of the impact on real disposable income growth of the decline in energy prices, as we know from earlier that the rise in energy prices effectively offset the benefit to U.S. consumers from the decline in payroll taxes that blunted what otherwise would have been a positive impact. We know that the impact of the Japanese earthquake which created supply bottlenecks that held back production especially in the auto sector. These are temporary factors that are now reversing. To estimate exactly to the decimal point the speed is always a difficult thing. So I would say that the near-term differences in forecasts are really quite modest. In the longer-term there of course is a serious question that as you know has been of interest to us, to investigators, to researchers as well as to policymakers, is how long the tail impact of the financial stress and the downturn will be. We had expected and continue to expect that it will continue to mean that the recovery is modest relative or moderate relative to what it could have been. At the same time, our finding is that given the challenges, i.e., the problem of stress in the financial sector, especially the problems in the housing sector, the international setting, the U.S. recovery has been actually pretty reasonable given those challenges. So it's not been a surprise to us that the recovery has been more moderate than might have been desired. It's not a surprise to us that there will continue to be a challenge. And this again underscores the importance of success in creating an effective medium-term fiscal path of adjustment that is credible, for monetary policy to accurately gauge the challenges in terms of inflation risk and at the same time success in the regulatory reform effort in reestablishing complete confidence and full effectiveness of the financial sector. Thanks.

MS. BECKMAN: I want to go to a question online. This follows on from the discussion of the U.S. recovery. It's from ”China Daily." The question is, "What impact will the U.S. economy and recovery have on the global economic recovery and sustainable development? And what's the global outlook looking at the U.S. and Greek debt issues." Taking those two together.

MR. LIPSKY: That's a very broad question. As I said in my introductory remarks, of course the U.S. economy is important for its principal partners. As I think I pointed out, that the spillover analysis suggested that with the exception of our very close trading partners that the effect is felt principally through financial channels. Broadly consistent with our U.S. forecast, as you know, our global forecast for this year and next year is about 4-1/2 percent growth. We should keep that in perspective. The 20-year average for global growth is 3.6 percent. The 30-year average for global growth is 3.5 percent. Our forecast is 4-1/2 percent. So it's not a bad performance. As we've explained in other fora, the challenges for the advanced economies, this means growth of around 2-1/2 percent or so for this year and next year and that's not fast enough to reduce the pressures of unemployment and to use up excess capacity at a pace that would be hoped or desired so there's a need to navigate that accurately. For the emerging economies looking for growth to average around 6-1/2 percent this year and next year in a context in which in many of the key emerging economies there are pressures of rising inflation and other incipient signs of overheating. Put that all together and that means that's why the effort at coherence in macroeconomic policy setting through the G-20 for example, through the G-20 MAP, the Mutual Assessment Process, and the Framework for Strong and Sustainable Balanced Growth, is very important to the continued success of the global expansion making it more resilient, better balanced and more sustainable. As the advanced economies need to introduce the kind of reforms that we've talked about for the U.S., the emerging economies especially the surplus emerging economies, refocusing their growth on domestic demand to sustain solid growth but make it better balanced and more sustainable.

MR. RUGABER: Bruce Rugaber at the Associated Press. I wanted to ask about the comments in the report on the debt ceiling and the need that you expressed for it to be raised expeditiously. What does that imply for potential brinksmanship in Congress? What would the impact be if it went down to the wire to the August 2 deadline?

MR. LIPSKY: We certainly wouldn't want to get into the weeds of the U.S. political process or to judge its course in the maneuverings. We're confident that the participants are well aware of the potential risks of a debt default in the U.S. and will avoid those dangers.

MR. RUGABER: Right. But I mean would the things that you mentioned such as jump in interest rates happen if it down to August 1?

MR. LIPSKY: We wouldn't want to get into hypotheticals, but suffice it to say it should be self-evident. A debt default in the U.S. government debt market would have very serious, far-reaching, dramatic repercussions and that's why we're confident that it will be avoided.

MR. TALLEY: Ian Talley again with Dow Jones. As you're well aware, a recent IEO report said that Fund research and surveillance often pull punches, that it's refrained from saying everything that perhaps IMF staff had wanted to say in the reports. I'm wondering are there any areas in this report where punches have been pulled for the biggest voting member? And perhaps I can ask a non-American to answer given the perceived at least if not real potential conflict of interest that might be represented there?

Secondly, since you all have talked about the risk of Greek contagion, Euro debt issues on the U.S., I think it's an appropriate question to ask whether the private-sector involvement proposals that are being put forward by the now next Managing Editor…or Managing Director –

MR. LIPSKY: Journalism on the brain there I guess. There is no more powerful figure than a Managing Editor is there?

MR. TALLEY: Yes. You're right. Whether those -- rating agencies represent a credit event or whether rating agencies should view those with more benevolence?

MR. LIPSKY: They're two complicated questions but easy to answer. I will allow my non-American colleagues to answer whether punches are being pulled. I expect I know what the answer will be. But allow me to say that IEO reports are an important contribution from the Independent Evaluation Office, which provides exactly as the name describes, a well informed but independent set of experts who take a look at various aspects of the Fund's operations and offer suggestions for improvement and that's essential to our nature of a learning institution, of an institution that is always striving to make improvements.

There is per force a limitation on the IEO reports in the sense that they have to have a cutoff in time and so by nature they're always a little bit behind, but that just can't be helped. That's just the nature of the beast. We think that we're doing a very good job, certainly we're making a very clear effort to ensure that our analysis is thorough, penetrating and evenhanded among all our membership. I can assure you as the Acting Managing Director that I don't feel the slightest bit inhibited in making the observations that we think are appropriate and are necessary, and in fact is our responsibility. So it's something that we take quite seriously and I would invite you all to take a look and read the reports and I think you'll see that they address the appropriate issues in a very serious way. I'm not trying to preclude if my colleagues want to add anything to that, but perhaps, Nicholas, as Director of the Western Hemisphere Department.

MR. EYZAGUIRRE: I would say that definitely not. We have not refrained from punching. And if you read the report when you have the opportunity that you can also see between the lines of what has been distributed today that we have been very candid and we have said with appropriate language things that are quite blunt. Just to mention some of them, we say clearly that failure to maintain credibility about the U.S.'s debt path could be a serious event both for the United States and for the rest of the world so that it is of utmost importance that the political system manages to agree upon a fiscal consolidation path. We have also said that is to say the risk, the first one of doing too little, but we have also said that failure to agree upon medium-term fiscal consolidation plan could mean that in order to regain credibility you could do too much fiscal consolidation that it would impair the cyclical position of the U.S. So those are big words and not could be said very cautiously that there are risks on the upside or on the downside that are not little ones.

Moreover, we have said that because U.S. authorities will have to recognize this and being very skillful in managing this situation. And the Dodd-Frank Act is really a sort of seminal piece when it comes to regulation worldwide, but there are risks that implementation is not as steadfast as we need and funding programs, for instance, for some agencies could clog the necessary speed on this. So there are areas where you will have clear guidance on what our views of things that should be monitored, and therefore I think beyond sort of the appropriateness of the language we have been very blunt.

MS. BECKMAN: We could take one more.

MR. LIPSKY: One more, but let me finish and come back on the contagion issue just to make sure it's clear. In the past week really there have been some very important advances with regard to progress on implementing a structural reform program for Greece supported by its troika partners. One has been the event of today. The passage by the Greek Parliament of a very ambitious structural reform program. This is the bedrock of all the other aspects, the principal challenges for the Greek authorities and the Greek people to implement the reforms that will restore their competiveness and open the road to economic expansion and prosperity.

Second has been an agreement with the European partners that there will be some element of private-sector involvement and the initial engagement with European financial institutions in this regard. So I would say there are still details to be worked out. I personally will be attending a meeting of the Euro Group Finance Ministers in Brussels on this coming Sunday at which I hope additional progress will be made. But I would say that this is headed -- for all the difficulties and challenges of this case that real progress is being made and I'm sure under the leadership of the new Managing Director the Fund will continue to play a supportive and positive role in this issue.

MS. BECKMAN: There were some questions online about the debt ceiling which we've covered, so I'll just take one more quick question from the room on the U.S. preferably.

MS. WROUGHTON: On the U.S.?

MR. LIPSKY: It's this small economy here right around Washington that probably has some importance. [Laughter.]

MS. WROUGHTON: But I -- is connected, Mr. Lipsky.

MR. LIPSKY: Yes.

MS. WROUGHTON: I do want to ask you about the decision of the U.S. and then Europe and everybody else to this 60 million barrels a day of crude. I think the U.S. is going to pick up half of that volume. The decision was about trying to give a boost to the global economy. It's a form -- that they saw a stimulus. How does the Fund actually see this decision? Number two, can you really see it creating lasting or long-term effects to the global oil price and generally the economy?

MR. LIPSKY: Yes. Let's take the question more broadly and then I don't know if we have anything particularly insightful to add about the specific use of the reserve because it's not at all clear whether this was intended to represent a new policy, any kind of change or simply a continuation of the preexisting policy of using the reserves in times of market disruption. We had for some time anticipated the rise in oil prices into the low nineties. If you remember the sequence of events back last -- at the WEO of the fall at the Annual Meetings of 2010, we'd had a forecast of about $80 a barrel. Then in the subsequent months global demand was stronger than we had anticipated.

We recalibrated and said that strengthening of demand could be associated with the movement in prices up until the low nineties and that our perception was that the movement of prices above close to $110 a barrel represented a risk premium that was not in line with our understanding of the impact of fundamentals.

So at this time for whatever reason, and I wouldn't want to judge what role the opening of the reserves had, we now have oil prices back down into a range that we would consider consistent although there's always -- we wouldn't claim to dollar accuracy on a dollar price forecast, but it seems broadly consistent with our understanding of the strength of demand globally and supply. So in that sense what we have now seems broadly consistent and sustainable and that's why we're comfortable with using for our forecast not just in the U.S. but globally a price forecast in line with the forwards that are essentially a flat price from where we are today. Again I don't know if my colleagues want to make any comment. I don't think we would have any particular insight on the role of the reserves or their future use, only the point I've already made: Prices now seem consistent with the fundamental demand that we see and as a result don't provide let's call it an independent disruption or source of potential deviation from our own forecast. Whereas earlier this year in the last few months it clearly dampened the strength of disposal income growth in the U.S. and elsewhere and certainly was one of the important forces that meant that second-quarter growth globally fell short of expectations but at the same time provides some of the confidence that we have not just in the U.S. but globally that growth should be expected to strengthen at least somewhat globally and in the advanced economies in particular in the second half of the year. And you should note in that regard despite all this turmoil in Europe, our latest World Economic Outlook update actually increased our growth forecast for 2011 for the Euro Area as the strength of growth in the core countries especially Germany has in fact somewhat outpaced our earlier expectations. Thanks.

MS. BECKMAN: Thank you. That concludes the press conference for the U.S. Article IV concluding statement. A transcript will be posted later online.

MR. LIPSKY: Thank you very much. Thanks for your attendance.

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