In the two weeks before his talk at SIPA on April 13, Dr. Jacob A. Frenkel said, he was asked the same question in Tokyo, Beijing, and Frankfurt: Is the world ready for U.S. normalization on monetary policy?
Frenkel is the chairman of JPMorgan Chase International and a member of the J.P. Morgan International Council. He also serves as chairman of the board of trustees of the Group of Thirty (G-30), which is a private, nonprofit, consultative group on international economic and monetary affairs. Between 1991 and 2000, he served two terms as the Governor of the Bank of Israel.
During his talk, “The Global Economic and Financial System: Challenges and Prospects,” Frenkel asked, “Why do we talk about normalization?”
Factors related to a normalization of U.S. monetary policy include leverage and debt, global economic growth and trade, and labor market conditions, he said. Frenkel said students should consider questions like What’s the cure? What’s the side effect and how long will it last?
Frenkel discussed how the 2008 financial crisis delivered an unbelievable shock to financial systems worldwide. He underscored that the crisis took place all around the globe, with central banks injecting liquidity by buying assets in the market by paying with newly printed money. Rates fell to an unprecedented low, “It’s a phenomenon that has been global.”
Frenkel argued that the United States is much more ready for normalcy than other economies. He said it’s crucial to think about others because of how interlinked global financial markets are. He highlighted that U.S. and EU labor markets have diverging unemployment rates, participation rates, long-term unemployment, as well as education and unemployment.
Frenkel argued that many countries entered the crisis during a convergence, but now, at the exit point, not all countries are ready to the same extent.