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WHEN: Today, Friday, October 13
WHERE: CNBC's "Power Lunch"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Bank of England Governor Mark Carney on "Power Lunch" (M-F, 1PM-3PM ET) today. Following are links to video of the interview on CNBC.com: https://www.cnbc.com/video/2017/10/13/bank-of-england-governor-inflation-will-start-to-come-in-stimulative-environment.html, https://www.cnbc.com/video/2017/10/13/bank-of-england-governor-brexit-will-be-a-big-adjustment.html and https://www.cnbc.com/video/2017/10/13/bank-of-england-governor-it-may-be-appropriate-to-make-modest-adjustment-to-interest-rates.html.
All references must be sourced to CNBC.
STEVE LIESMAN: WE HAVE LOTS OF ISSUES ON THE TABLE HERE GOVERNOR CARNEY, THANK YOU FOR BEING HERE
MARK CARNEY: THANK YOU FOR HAVING ME STEVE
LIESMAN: WHAT I WANT TO DO WITH THIS INTERVIEW IS SPECIIFICALLY SPEND TIME TALKING ABOUT THE U.K., THE POLICY AND THE ECONOMY AND BROADEN IT OUT TO GET YOUR THOUGHTS OBVIOUSLY, YOU WERE THE GOVERNOR OF CANADA DURING THE FINANCIAL CRISIS AND A MAJOR PLAYER IN THE WORLD ON BANKING REGULATION. LET ME START OFF WITH U.K. POLICY THERES EXPECTATIONS IN THE MARKET FOR NOVEMBER RATE HIKES THE FIRST ONE, I BELIEVE, IN TEN YEARS. IS THAT WHAT YOU BELIEVE THE MPC OUGHT TO BE DOING?
CARNEY: WELL, WHAT THE MPC HAS BEEN DOING SINCE THE REFERENDUM ON BREXIT, WHICH WAS 14 MONTHS AGO, HAS BEEN PROVIDING A LOT OF STIMULUS TO THE U.K. ECONOMY ITS A PERIOD OF ADJUSTMENT, AND WE HAVE BEEN WILLING TO TOLERATE INFLATION BEING AN OVERTARGET, WHERE IN A RELATIVELY RARE ECONOMY WITH HAVING INFLATION HIGHER THAN TARGET AMONG THE MAJOR CENTRAL BANKS, WE ARE TOLERATING INFLATION BEING OVER TARGET FOR LONGER IN ORDER TO CROWD IN UNEMPLOYMENT DURING A TIME OF BIG ADJUSTMENT IN THE UK ECONOMY. AS WE SIT HERE TODAY UNEMPLOYMENT IN THE UK IS AT A 42 YEAR LOW. MORE PEOPLE IN THE UNITED KINGDON ARE WORKING THAN EVER BEFORE. AND SO WE ARE RUNNING OUT OF THAT SPARE CAPACITY AND THAT TOLERANCE FOR HAVING INFLATION OVER TARGET IN YEARS TWO AND THREE IS DIMINISHED. SO IN THE VIEW OF THE MAJORITY OF THE COMMITTEE, AND I INCLUDE MYSELF IN THE MAJORITY, IT MAY BE APPROPRIATE TO MAKE SOME MODEST ADJUSTMENT TO INTEREST RATES. IN OTHER WORDS RAISE INTEREST RATES. AND THE LANGUAGE WE USE AND I AM GOING TO STICK TO IT IN THE LAST DECISION THAT WAS A MONTH AGO WAS IN COMING MONTHS SO I WON'T PUT A FINE POINT ON IT. SO UNFORTUNATELY, STEVE, I WONT MAKE A DECISION HERE ON THIS
LIESMAN: THAT'S FAIR ENOUGH YOU DONT TELL YOUR BOARD HOW TO VOTE.
LIESMAN: AND THESE GUYS THAT ARE ON THE COMMITTEE ARE NOT SHY ABOUT DECENDING. 6-2, 6-3 – IS A NORMAL VOTE OUT THERE
CARNEY: IT IS A VERY HEALTHY SYSTEM I THINK IT IS RIGOROUS INDIVIDUAL ACCOUNTABILITY YOUVE GOT A VERY DIVERSE RANGE OF OPINION YOU HAVE MARKET ECONOMIST, YOU HAVE ACADEMIC ECONOMISTS PEOPLE FROM DIFFERENT BACKGROUNDS, OBVIOUSLY IM CANADIAN, SO YOU GET DIVERSITY AND DIFFERENT VIEWS AND THAT'S FAIR.
LIESMAN: IM USED TO COVERING MONETARY POLICY IN TERMS OF DIRECTIONAL SHIFTS WHEN A BANK GOES FROM CUTTING TO NEUTRAL TO HIKING, IT'S A DIRECTIONAL SHIFT. ARE YOU THINKING ABOUT WHAT YOU MIGHT DO NEXT MONTH IN TERMS OF DIRECTIONAL SHIFT OR SHOULD IT BE THOUGHT OF BY MARKETS AS A ONE-OFF IDEA?
CARNEY: WELL, YOU HAVE TO TAKE ONE DECISION AT A TIME, FIRST POINT. SECOND, WERE IN A WORLD OF LIMITED AND GRADUAL RATE MOVES IN ANY DIRECTION IN PART BECAUSE THE GLOBAL EQUILLIBRIUM RATES ARE SO LOW. AND WE ARE ALSO IN A SITUATION IN THE UNITED KINGDOM WHERE WE HAVE A FAIR BIT OF UNCERTAINTY ABOUT OUR FUTURE TRADING RELATIONSHIP WITH OUR LARGEST TRADING PARTNER. WE SEND ALMOST 50% OF OUR GOODS AND SERVICES TO THE EUROPEAN UNION. THAT RELATIONSHIP HAS BEEN RENEGOTIATED AS WE SPEAK AND THAT IS GOING TO WEIGH ON, VERY IMPORTANTLY, HOW BUSINESSES AND HOUSEHOLDS IN THE U.K. ACT AND THEREFORE HOW POLICY REACTS.
LIESMAN: LETS TALK ABOUT BREXIT AND YOURE THINKING THE ABOUT BREXIT IS IT SOMETHING THAT LEADS ULTIMATELY TO MORE GROWTH IN THE U.K. OR LESS GROWTH IN THE U.K.?
CARNEY: WELL, ITS A QUESTION OF YOUR TIME HORIZON ITS GOING TO BE A BIG ADJUSTMENT THE SCALE OF THE ADJUSTMENT WILL DEPEND ON WHAT THE FINAL ARRANGEMENT IS BETWEEN THE U.K. AND THE EUROPEAN UNION IF IT IS A DEEP COMPREHENSIVE BROAD TRADE AGREEMENT, THE ADJUSTMENT WILL BE MUCH LESS BUT IN ANY WAY, SHAPE OR FORM, WHAT IT IS GOING TO LEAVE IS THE INTENTION OF A MORE GLOBAL BRITAIN. A BRITAIN THAT ASSIGNS TRADE DEALS WITH THE EMERGING ECONOMIES, WITH HOPEFULLY THE U.S., CANADA AND OTHER MAJOR ADVANCED ECONOMIES, ANDTHERE WILL BE A PERIOD OF TIME WHERE THE ECONOMY IS REORIENTING NOW, WHEN THAT HAPPENS AND YOU HAVE BIG SHIFTS TO CAPITAL PLANNED EQUIPMENT, IT WEIGHS ON GROWTH A BIT FOR THAT PERIOD OF TIME SO LONGER TERM, YOU CAN SEE STRONGER GROWTH. IN THE NEAR-TERM, WE THINK TWO THINGS WILL HAPPEN ITS A QUESTION OF DEGREE, BUT BOTH ON THE DEMAND SIDE, THERE WILL BE LESS DEMAND, APART BECAUSE OF THE TRADE RELATIONSHIP WILL CHANGE TO SOME DEGREE WITH EUROPE PARTLY BECAUSE OF UNCERTAINTY AS WELL DOMESTICALLY. AND THEN ON THE SUPPLIES SIDE, PRODUCTIVITY, POTENTIAL GROWTH AND LABOR FORCE, THAT IS PROBABLY GOING TO DIMINISH AS WELL SO WE HAVE TO DO AT THE CENTRAL BANK IS LOOK AT THE BALANCE BETWEEN THE TWO IN ORDER TO SET POLICY.
LIESMAN: LESS ACTIVITY AND POTENTIAL GROWTH, THAT MEANS YOUR NEUTRAL RATE IS LOWER BUT THAT ALSO MEANS YOURE A LOT CLOSER TO IT AND YOU SHOULD PROBABLY, ITS POTENTIALLY INFLATIONARY, RIGHT?
CARNEY: IT IS A POINT WE HAVE MADE THE MONETARY POLICY RESPONSE TO BREXIT, WHEN IT HAPPENS, IS NOT AUTOMATIC. IT WILL ALSO DEPEND ON WHAT THE EXCHANGE RATE WILL DO.
LIESMAN: THATS WHY WHEN YOU TALK ABOUT WHAT MIGHT HAPPEN IN NOVEMBER --
CARNEY: WHAT WE ARE MANAGING POLICY FOR NOW IS THE ECONOMY IN THE TRANSITION TO A FUTURE END STATE. WHICH IS SOMEWHAT UNCERTAIN.
LIESMAN: WHATS THE WORST THING THAT CAN HAPPEN IN TERMS OF GROWTH FOR THE U.K.
CARNEY: WELL, LOOK, I WOULDN'T USE THAT WORD. OUR JOB IS TO DELIVER TWO THINGS. FIRST, PRICE STABILITY. SO WE'RE GOING TO – IF WE HAVE TO RAISE INTEREST RATES, ADJUST POLICY IN ORDER TO HIT THAT 2% TARGET, WE'LL DO IT. NO MORE, NO LESS. AND THEN THE SECOND THING IS MAKING SURE THE CORE OF THE FINANCIAL SYSTEM, ONE OF THE MOST IMPORTANT FINANCIAL SYSTEMS IN THE WORLD,THAT THAT CORE IS RESILIENT TO WHATEVER POTENTIAL OUTCOME HAPPENS WITH THESE BREXIT NEGOTIATIONS. OBVIOUSLY, WE WANT THE BEST POSSIBLE OUTCOME NOT JUST FOR THE U.K., BUT FOR THE EU27.
LIESMAN: HOW MUCH CONCERN DO YOU HAVE THAT THE U.K. FINANCIAL INDUSTRY MIGHT END UP LEAVING THE ISLAND AND GOING TO THE CONTINENT?
CARNEY: WELL LOOK, IT IS GOING TO DEPEND ON THE FINAL AGREEMENT. SO I WOULD SAY IT IS STILL ALL TO PLAY FOR. THERE WILL BE SOME ADJUSTMENT INEVITABLY, BUT LONDON IS THE LEADING INTERNATIONAL FINANCIAL CENTER AND IT IS MUCH MORE THAN JUST THE FINANCIAL CENTER FOR THE EU27.
LIESMAN: I WANT TO TALK ABOUT THE U.S. THERE'S BEEN A MOVEMENT IN THE U.S. TO MOVE BACK FROM SOME OF THE RULES THAT WERE PROMULGATED IN DODD/FRANK AND FINANCIAL REGULATION. YOU ARE THE HEAD OF REALLY THE GLOBAL COORDINATION WHEN IT COMES TO FINANCIAL REGULATION. ARE YOU CONCERNED THAT THE U.S. IS WATERING DOWN SOME OF THOSE FINANCIAL CRISIS REGULATIONS?
CARNEY: TWO THINGS. THE SHORT ANSWER IS NO, BUT LET ME EXPLAIN. FIRST, ON A HIGH LEVEL, INTERNATIONALLY IN THE U.K., IN THE UNITED STATES, WE HAVE DONE A LOT IN TERMS OF FINANCIAL REGULATION AND WE HAVE MADE THE SYSTEM SAFER, SIMPLER AND FAIRER. I FIRMLY BELIEVE THAT. BUT WHEN YOU HAVE DONE A LOT, YOU NEED TO STEP BACK, LOOK AT HOW ALL OF THOSE RULES FIT TOGETHER AND MAKE ADJUSTMENTS. THERE'S GOING TO BE OVERLAP, UNDERLAP, INCONSISTENCIES, PLACES WHERE YOU HAVE DONE TOO MUCH, TOO LITTLE. AND THEN SECONDLY, WHEN YOU GO TO WHAT THE UNITED STATES IS FOCUSED ON, THE U.S. ADMINISTRATION – SO THEY ARE LOOKING AT THINGS LIKE VOLCKER WHERE THERE COULD BE SOME ADJUSTMENTS, HOW THEY RUN STRESS TESTING WHERE THERE COULD BE SOME EFFICIENCIES, POTENTIALLY THE SIZE THRESHOLD FOR WHAT IS A COMMUNITY BANK, WHICH BANKS BECOMES SYSTEMIC. AGAIN, ALL SENSIBLE THINGS, WHICH QUITE FRANKLY, ARE U.S. FOCUSED AS OPPOSED TO INTERNATIONALLY FOCUSED. SO IT IS NOT FOR US TO SAY HOW THE U.S. ORGANIZES ITS DOMESTIC SYSTEM AND IT IS ALSO CONSISTENT WITH AN INTERNATIONAL EFFORT TO LOOK AT SOME OF THE RULES, WE'RE LOOKING AT THEM IN THE DERIVATIVE MARKETS, LEVERAGE RATIOS, OTHER FACTORS, AND MAKE THE ADJUSTMENT THAT IS GOING TO DELIVER THE SAME AMOUNT OF RESILIENCE, BUT IN A MORE EFFICIENT WAY.
LIESMAN: LET ME TALK ABOUT THE GLOBAL MACRO SITUATION HERE. HAVE YOU BEEN SURPRISED CENTRAL BANKS – WELL I GUESS, EXCEPT FOR YOURSELF, YOU MIGHT WALK INTO SOME OF THESE CENTRAL BANK MEETINGS WITH A LITTLE BIT OF PRIDE SINCE YOU ARE THE ONLY ONE WITH INFLATION. GENERALLY, THEY SEEM INCAPABLE OF HITTING THEIR INFLATION TARGETS. IS THAT A CONCERN?
CARNEY: LOOK, I THINK THE BIG PICTURE HERE RIGHT NOW IS THE GLOBAL ECONOMY IS FIRING ON MOST CYLINDERS. WE HAVE 75% OF THE WORLD ECONOMY GROWING ABOVE POTENTIAL. THE QUALITY OF THAT GROWTH HAS GONE UP. THERE'S A LOT MORE BUSINESS INVESTMENT SHOWING UP AROUND THE WORLD AND THAT MEANS THAT THE EQUILIBRIUM INTEREST RATE IS STARTING TO MOVE UP WHICH MEANS THAT POLICY, WHETHER IT IS IN THE U.K., IN THE U.S., IN EMERGING MARKETS, IF YOU ARE STANDING STILL, IT IS BECOMING MORE STIMULATIVE. INFLATION WILL START TO COME IN THAT ENVIRONMENT. IT IS NOT SURPRISING GIVEN THE BIG SHOCK WE HAVE ALL BEEN THROUGH AND THE COORDINATED OPENING UP OF OUTPUT GAPS THAT IT IS TAKING A LITTLE LONGER. BUT WE ARE MOVING IN THE RIGHT DIRECTION. OUR JOB IS TO MAKE SURE WE CONTINUE ON THAT PATH.
LIESMAN: I HAVE ONE MORE QUESTION ON BEHALF OF ONE OF MY PRODUCERS WHO IS FASCINATED BY YOUR COMMENTS ABOUT THE THREAT OF ARTIFICIAL INTELLIGENCE TO WORKERS. IS THAT A REAL ISSUE OUT THERE? HOW MUCH CONCERN DO YOU HAVE ABOUT THAT?
CARNEY: WELL, I THINK, LOOK, I WOULDN'T SIMPLIFY IT DOWN TO THAT. THERE ARE A HUGE NUMBER OF TASKS – PROBABLY NOT INCLUDING YOURS, STEVE, THATS THE GOOD NEWS – BUT POTENTIALLY INCLUDING MINE, THATS THE BAD NEWS. THE HUGE NUMBER OF TASKS WHERE A.I. CAN PLAY A HUGE ROLE BUT IT IS A SUPPLEMENTARY ROLE IN TASK. IT DOESNT NECESSARILY REMOVE THE WHOLE JOB –
LIESMAN: YOU DON'T THINK IT DESTROYS JOBS?
CARNEY: LOOK, THERE ARE SOME JOBS THAT WILL MOVE THERE AND THEY ARE POTENTIALLY BIG CHUNKS. MOST JOBS WILL BE AFFECTED, BUT THE QUESTION IS, CAN IT ENHANCE THE INTELLIGENCE OF -- IS IT POSSIBLE TO MAKE STEVE LIESMAN EVEN SMARTER THAN HE ALREADY IS? THAT WOULD TAKE A MACHINE.
LIESMAN: THAT REMAINS TO BE SEEN. GOVERNOR CARNEY, THANK YOU FOR JOINING US.
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