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WHEN: Today, Wednesday, September 28th
WHERE: CNBC's "Squawk Alley"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with IMF Managing Director Christine Lagarde and CNBC's Sara Eisen on "Squawk Alley" (M-F, 11AM-12PM ET) today, Wednesday, September 28th. Following are links to the video on CNBC.com: http://video.cnbc.com/gallery/?video=3000554878 and http://video.cnbc.com/gallery/?video=3000554879.
All references must be sourced to CNBC.
SARA EISEN: HI, GOOD MORNING, CARL, GOOD TO SEE YOU. WE'RE HERE AT THE KELLOGG SCHOOL OF MANAGEMENT AT NORTHWESTERN UNIVERSITY, WITH MADAME LAGARDE, WHO HAS JUST GIVEN A SPEECH ON THE STATE OF THE GLOBAL ECONOMY. I'LL LET YOU SUM IT UP FOR US AHEAD OF THE BIG MEETINGS NEXT WEEK AND A WIDELY ANTICIPATED NEW FORECAST ON THE GLOBAL ECONOMY. SORT OF WEAK GROWTH.
CHRISTINE LAGARDE: I WOULD CALL IT MODEST, WE HAVE MODEST GROWTH. AND WE HAVE MODEST GROWTH, BECAUSE THERE ARE MODEST POLICIES. WE ARE VERY STRONGLY ADVOCATING FOR MORE VIGOROUS GROWTH, MORE INCLUSIVE GROWTH, AND TO DO THAT, WE NEED TO SET OFF MORE VIGOROUS AND DETERMINED POLICIES IT'S DOABLE AND IT REQUIRES A BIT OF POLITICAL DETERMINATION AND BETTER COORDINATION BETWEEN THE PLAYERS.
EISEN: SOME OF WHAT'S BEEN HOLDING BACK GROWTH HAS BEEN UNCERTAINTY AND HERE IN THE U.S., THE BIGGEST IS THE COMING ELECTION. DO YOU SEE THAT AS BEING HARMFUL RIGHT NOW TO THE U.S. ECONOMY?
LAGARDE: YOU KNOW, ONE OF THE BASIC PRINCIPLES THAT WE ADVOCATE AS WELL IS DO NO HARM AND DO NO HARM BEGINS WITH TRADE. TRADE HAS BEEN HISTORICALLY A MAJOR DRIVER FOR GROWTH IT HAS GROWN TWICE THE PACE OF GLOBAL GROWTH. IT HAS TAKEN A LOT OF PEOPLE OUT OF POVERTY. IT HAS MOVED THE NEEDLE IN MANY WAYS, BUT TO NOW HURT TRADE, TO RESTRICT TRADE IN OUR VIEW WOULD BE AN ECONOMIC MALPRACTICE. WE ARE VERY STRONGLY ADVOCATING FOR THE TWO SIDES OF TRADE SUPPORT IT, PROTECT THE TRADE, BUT PROTECT ALSO THE PEOPLE WHO ARE AT RISK BECAUSE THEY RISK LOSING THEIR JOB, BECAUSE THEY -- THE SUPPLY CHAIN IS GOING TO BE MODIFIED IN THE COURSE OF TIME. THERE HAS TO BE ACTIVE POLICIES ON THOSE TWO FRONTS. PROTECT TRADE, PROTECT THOSE PEOPLE WHO MIGHT BE AFFECTED BY TRADE.
EISEN: WE'RE HEARING THE OPPOSITE ON THE CAMPAIGN TRAIL. BOTH HILLARY CLINTON AND DONALD TRUMP ARE AGAINST TPP, AND THERE'S A REAL CONCERN ABOUT THE WORKERS THAT HAVE BEEN LEFT BEHIND ON WAGES, HAVE SEEN THEIR JOBS MOVE OVERSEAS. HOW DO YOU MAKE THE ECONOMIC CASE FOR THE BENEFITS OF TRADE WHEN THAT'S HOW AMERICANS ARE FEELING?
LAGARDE: IT HAS TO BE INCLUSIVE. IN OTHER WORDS, IT CANNOT BE ONLY GOOD FOR CONSUMERS. THE REASON WE ARE CONSUMING SO CHEAP GOODS AROUND THE U.S. IS ALSO BECAUSE OF TRADE OVER THE COURSE OF THE LAST TWO DECADES. IT HAS LEFT SOME PEOPLE IN SOME AREAS OUT OF A JOB BECAUSE THE SUPPLY CHAIN HAS CHANGED, BECAUSE SOME JOBS HAVE BEEN REMOVED, BECAUSE SOME INDUSTRIES ARE RELOCATED. FOR THOSE PEOPLE, THERE HAS TO BE POLICIES TO HELP THEM, PROTECT THEM, EQUIP THEM AND IT CANNOT BE ABOUT LET'S BRING BACK ALL THE INDUSTRIES OF THE PAST BECAUSE YOU DON'T REWRITE HISTORY. YOU HAVE TO ANTICIPATE. YOU HAVE TO EQUIP. YOU HAVE TO EDUCATE. YOU HAVE TO HAVE A SOCIAL SAFETY NET WHERE PEOPLE FEEL ALTHOUGH THEIR JOB IS GONE, THEY ARE GOING TO BE EQUIPPED, THEY ARE GOING TO BE LOOKED AFTER, THEY'RE GOING TO BE HELPED.
EISEN: IS THE TPP AN INCLUSIVE TRADE AGREEMENT?
LAGARDE: YOU KNOW, I DON'T HAVE THE DETAILS OF ALL THE TPP AT THE TOP OF MY FINGERS BECAUSE I'VE NOT NEGOTIATED IT, BUT I KNOW SOME TRADE AGREEMENTS CAN BE MADE GOOD NOT ONLY FOR GROWTH BUT ALSO GOOD FOR PEOPLE. THEY HAVE TO BE BALANCED. THEY HAVE TO LOOK INTO TARIFFS, REGULATORY ENVIRONMENT, SERVICES AS WELL AS GOODS BECAUSE THERE ARE MANY MORE SERVICES NOW FLOWING AROUND THE WORLD WHEN IT COMES TO INFORMATION, WHEN IT COMES TO TRAVELING, WHEN IT COMES TO THOSE THINGS THAT WE CONSIDER AS PART OF DAY TO DAY LIFE. THERE HAS TO BE A SPECIFIC CONCERN THAT HAS NOT BEEN AROUND ENOUGH ABOUT THOSE PEOPLE WHO LOSE OUT AS A RESULT OF TRADE
EISEN: ON THAT NOTE WHAT WOULD RIPPING UP NAFTA AND GOING BACK TO RENEGOTIATE IT DO TO THE U.S. ECONOMY, TO THE MEXICAN ECONOMY, THE CANADIAN ECONOMY? WHAT WOULD BE THE DAMAGE?
LAGARDE: IT'S IMPOSSIBLE TO PREDICT, BUT WHAT WE CAN BE CERTAIN OF IS ERECTING MORE BARRIERS PREVENTING THE FLOW OF GOODS AND SERVICES WOULD CERTAINLY CAUSE LOSSES, DAMAGE IN VARIOUS COUNTRIES, AND WOULD CERTAINLY NOT BOOST GROWTH, AND WHAT WE NEED AT THE MOMENT IS ACTUALLY MORE GROWTH, NOT THAT MODEST GROWTH THAT I WAS TALKING ABOUT. YOU KNOW, TRADE, AS I SAID, HAS BEEN A MAJOR ENGINE FOR GROWTH. IF YOU LOOK AT GROWTH OVER THE COURSE OF THE LAST FEW DECADES, IT HAS 3.7%, 4%. TRADE 8%. IT WAS DOUBLE THE GROWTH RATE, WHICH MEANS THAT IT HAS SUPPORTED GROWTH. WE JUST NEED TO MAKE SURE THAT IT IS ALSO INCLUSIVE.
EISEN: A LOT OF PEOPLE SEE THE TRADE PARALLELS, THE ANTI-TRADE IN THE BREXIT VOTE, WHICH WE SAW OVER THE SUMMER. YOU HAD COME OUT AND STRONGLY WARNED AGAINST VOTING FOR BREXIT. THAT IT WOULD HURT THE BRITISH ECONOMY, THAT THERE COULD BE A SEVERE REACTION IN THE MARKET. NOW THAT THE ECONOMY AND THE MARKETS HAVE BOUNCED BACK RELATIVELY WELL, WERE YOU WRONG WITH THAT WARNING, OR IS IT JUST GOING TO TAKE A LITTLE BIT LONGER THAN EXPECTED TO PLAY OUT?
LAGARDE: WE SAW AN IMMEDIATE AND ABRUPT REACTION. MARKETS WENT DOWN. THE POUND WENT DOWN. IT'S NOT RECOVERED MASSIVELY FROM THAT, BY THE WAY. WE THINK THAT THERE WILL BE CONSEQUENCES. THERE WILL BE DOWN SIDE EFFECT AS A RESULT OF WHATEVER WILL COME, AND WE'RE STILL NOT SURE WHEN THE NEGOTIATIONS WILL BEGIN. THESE FAMOUS ARTICLE 50 HAS NOT BEEN TRIGGERED WHERE, IT WILL OPEN TWO YEARS OF NEGOTIATIONS. IF THAT IS NOT CALLED UNCERTAINTY WITH A BIG U, I DON'T KNOW WHAT IS.
EISEN: DO YOU SEE RISING EURO SKEPTICISM IN OTHER COUNTRIES AHEAD OF KEY GERMAN AND FRENCH ELECTIONS NEXT YEAR AS A RESULT OF BREXIT?
LAGARDE: YOU KNOW, THERE WILL BE THE TYPICAL ELECTORAL DEBATES WITH ITS EXCESSES AND ABUSES AS WE SEE ALWAYS IN ANY ELECTION AROUND THE WORLD, BUT I WOULD HOPE FOR MYSELF THAT IT WILL REINFORCE THE DETERMINATION TO PULL TOGETHER IN A COORDINATED WAY BECAUSE THIS IS WHAT WE REALLY STRONGLY BELIEVE IN. IF PEOPLE MOVE TOGETHER ON A DIFFERENTIATED BASIS, IT'S NOT GOING TO BE ONE SIZE FITS ALL, BUT IF THEY COORDINATE THEIR ACTION, WE WILL ALL GET MORE BANG FOR THE BUCK. THAT IS FOR SURE.
EISEN: THERE ARE RENEWED CONCERNS ABOUT THE HEALTH OF EUROPE'S BANKING SECTOR. DEUTSCHE BANK IS TRADING AT A RECORD LOW LEVEL. THERE'S REAL WORRY ABOUT WHETHER IT HAS ENOUGH CAPITAL. HAVE YOU SPOKEN TO CHANCELLOR MERKEL ABOUT DEUTSCHE BANK AND THE NEEDS OF THE GERMAN BANKING SECTOR?
LAGARDE: WELL, WE COMPLETED BACK IN JUNE, ACTUALLY, A FINANCIAL SECTOR ASSESSMENT OF THE GERMAN BANKING SYSTEM. AND IT IS A SYSTEM THAT IS CRITICALLY IMPORTANT WITH SOME SYSTEMIC PLAYERS. DEUTSCHE BANK IS CERTAINLY ONE OF THEM. SO I THINK WE ALL HAVE A STAKE IN MAKING SURE THAT THIS SITUATION IS ADDRESSED, THAT THE RIGHT MEASURES ARE TAKEN, THAT WE DON'T FALL INTO OVER DRAMATIZATION EITHER. BUT I TRUST THAT THESE MEASURES WILL BE TAKEN.
EISEN: DO YOU TRUST THAT THE GERMAN GOVERNMENT WOULD STEP IN IF CAPITAL IS NECESSARY?
LAGARDE: YOU KNOW, THIS IS SOMETHING THAT THEY'RE GOING TO DEBATE AMONGST THEMSELVES. I DON'T SEE –
EISEN: WOULD YOU RECOMMEND IT?
LAGARDE: I DON'T SEE THAT PARTICULAR INSTITUTION AS – AT A STAGE WHERE STATE INTERVENTION IS ABSOLUTELY CALLED FOR AT THE MOMENT. AND I WOULD HOPE THAT THE RIGHT MEASURES ARE TAKEN INTERNALLY SO THAT THE WHOLE FINANCIAL SECTOR IN GERMANY IS SOLID AND THAT SYSTEMIC PLAYERS IS STRENGTHENED. IT HAS RECOVERED A BIT TODAY, BY THE WAY.
EISEN: YES, IT HAS. BUT DO YOU SEE IT AS A GLOBAL SYSTEMIC RISK?
LAGARDE: DEUTSCHE BANK IS A SYSTEMIC PLAYER. LET'S FACE IT. BECAUSE IT HAS A LOT OF RELATIONSHIP WITH MANY OTHER BANKS AROUND THE WORLD. AND IT IS AN INTERNATIONAL PLAYER AS WELL. SO IT'S IMPORTANT THAT IT BE CONSOLIDATED AND, YOU KNOW, IT HAS A SOLID BASE. LET'S ALSO BE REALISTIC. BUT IT NEEDS MEASURES.
EISEN: WE'VE JUST BEEN WATCHING JANET YELLEN, WHO IS BACK ON CAPITOL HILL. DO YOU THINK IT'S TIME FOR THE FED TO RAISE INTEREST RATES AGAIN? DECEMBER PERHAPS?
LAGARDE: I THINK THEY ARE BEST EQUIPPED TO LOOK AT THE DATA, TO LOOK AT EMPLOYMENT NUMBERS, TO LOOK AT EMPLOYMENT PARTICIPATION, TO LOOK AT INFLATION. THEY SHOULD ONLY DO WHAT IS NEEDED WHEN THEY HAVE TOTAL CERTAINTY THAT THOSE NUMBERS ARE HEADING IN THE RIGHT DIRECTION AND GETTING TO THE STAGE WHERE IT REALLY WARRANTS A MOVE. WE REALLY HOPE THAT THIS IS DONE CAREFULLY –
EISEN: BUT DO YOU SEE THAT IN THE DATA? BECAUSE LAST SEPTEMBER YOU WARNED IT WAS TOO SOON.
LAGARDE: IF THEY'RE NOT SEEING IT AT THE MOMENT, WE CERTAINLY ARE NOT SEEING IT OURSELVES. BECAUSE THEY HAVE MUCH MORE GRANULAR DETAILS ABOUT THE U.S. MARKET, AND THEY HAVEN'T DONE ANYTHING IN SEPTEMBER. SO IF AND WHEN THEY DO IT, WE CERTAINLY ENCOURAGE THAT MOVE TO BE BASED ON VERY SOLID INFORMATION THAT WILL GIVE A STRONG MESSAGE THAT GROWTH IS ANCHORED AND THAT EMPLOYMENT IS SOLID AND INFLATION IS MOVING, YOU KNOW, VERY WELL TOWARDS THE 2%.
EISEN: CAN THE REST OF THE WORLD – CAN GLOBAL MARKETS, ESPECIALLY EMERGING MARKETS, HANDLE IT? BECAUSE LAST TIME, LAST DECEMBER, THERE WERE CERTAINLY SOME TURBULENCE THAT FOLLOWED.
LAGARDE: THE TURBULENCES WERE EVEN WORSE WHEN THERE WAS A WORD THAT IT MIGHT HAPPEN, REMEMBER? AND CHAIRMAN BERNANKE. I THINK A LOT OF THE EMERGING MARKET ECONOMIES ARE BETTER EQUIPPED TODAY THAN THEY WERE IN THOSE DAYS AND THEY ANTICIPATE AND THEY KNOW THAT IT WILL BE COMING AT SOME STAGE. SO I THINK THAT THEIR REACTION WILL BE BETTER REHEARSED. BUT IT DOESN'T MEAN TO SAY THAT IT WILL BE SOFT AND STABLE AND SMOOTH. THERE WILL BE CAPITAL MOVEMENT AND VOLATILITY AS A RESULT.
EISEN: DONALD TRUMP TOLD 84 MILLION PEOPLE THAT THE FED IS JUST BEING POLITICAL AND KEEPING INTEREST RATES LOW TO HELP OBAMA. IS THAT TRUE?
LAGARDE: YOU KNOW, AROUND THE WORLD, WE THINK IT'S CRITICALLY IMPORTANT THAT CENTRAL BANKS BE INDEPENDENT. AND CERTAINLY, WE HAVE NOT SEEN THE FED NOT BEING INDEPENDENT IN ITS DECISION MAKING PROCESS, IN THE WAY IN WHICH IT IS GOVERNED. WE DON'T SEE ANY LACK OF INDEPENDENCE THERE.
EISEN: ALRIGHT, THANK YOU. MADAM LAGARDE, WHO I KNOW, TRIES VERY HARD TO STAY NON-POLITICAL. THE MANAGING DIRECTOR OF THE IMF JOINING ME HERE AT THE KELLOGG SCHOOL OF MANAGEMENT AT NORTHWESTERN UNIVERSITY TO TALK ABOUT THE GLOBAL ECONOMY. BACK OVER TO YOU, CARL.
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