DARDEN WHO IS THE CHIEF
ECONOMIST AND CHIEF
MARKET STRATEGIST, I'M KM
PARTNERS MICHAEL GOOD TO HAVE
YOU HERE WITH US THIS MORNING
AND THANKS FOR TAKING THE TIME
AS ALWAYS LET'S TALK ABOUT
FED CHAIR JEROME POWELL
COMMENTS YESTERDAY THE FED SAYS
IT APPEARS THAT THE ECONOMY IS
IMPROVING QUICKLY AND
CONDITIONS OF INFLATION
UNEMPLOYMENT COULD BE MET
SOONER THAN EXPECTED WHAT DO
YOU MAKE OF WALL STREET'S
NEGATIVE REACTION TO HOUSE
COMMENTS.
>> ABSOLUTELY SO WHAT POWELL
SAID ESSENTIALLY WAS
THAT VEHICLE. I MEAN IS
RECOVERING FASTER THAN THE FED
ANTICIPATED IN WITH A FASTER
THAN
ANTICIPATED RECOVERY. THE FED
COULD BE MOVING INTO A TAPERING
EVENTUAL RATE HIKES SOONER
THAN EXPECTED. SO THE FED IS
NOW TALKING ABOUT TALKING ABOUT
80 PER EVEN THOUGH THERE'S BEEN
NO DECISION
ON A TAPE OR THEY WANT TO SEE
MORE IMPROVEMENTS NOT IN THE
LABOR MARKET BEFORE THAT
DECISION
IS MADE. BUT AS YOU
REFERENCED MARKETS, LOOK AHEAD
THERE ANTICIPATORY SO WHAT
WE'RE SEEING IN MARKETS IS
REAL RATES ARE MOVING UP.
SO THE REAL YIELD ON THE 10
YEAR TREASURY HAS MOVED UP
INFLATION EXPECTATIONS HAVE
MOVED DOWN A LITTLE BIT.
BUT THERE'S REALLY BEEN NO
OTHER STRESS IN KEY CREDIT
MARKET INDICATORS LIKE HIGH
YIELD BOND SPREADS HAVE WIDENED
AT ALL
IF SOMETHING YOU KNOW REALLY
ATROCIOUS WAS UNDER WAY WE SEE
A LOT OF PRESSURE ON THOSE
SPREADS IT'S NOT HAPPENING.
EQUITIES ARE A BIT SOFT HERE,
BUT YOU KNOW WE HAVE TO TAKE
THAT INTO THE CONTEXT OF THE
RUN-UP. THAT'S ALREADY OCCURRED
WERE TRADING AT QUITE HIGH
VALUATIONS SO WE'RE PROBABLY
GOING TO SEE SOME SHOPPING US
IN EQUITY MARKETS.
BUT THIS RECOVERY IS VERY MUCH
INTACT. AND I THINK THAT'S THE
MOST IMPORTANT MESSAGE HERE.
>> AND WE'VE CERTAINLY SEEN
SOME OF THAT ALSO SHOW UP IN
THE TREND NUMBER THE FOUR-WEEK
AVERAGE FOR THE JOBLESS CLAIMS
THAT CAME IN TODAY HITTING A 3
AND O FOR THE
FIRST TIME. SINCE THE FALL OF
THE AND THE BRUNT OF THE AND A
DETRIMENT WAS INCURRED ON THE
ECONOMIC FRONTS EARLY IN
THE PANDEMIC I WANT TO COME
BACK TO WHAT THE FED SAID IN
THEIR ANNOUNCEMENT YESTERDAY IF
I CAN TAKE A LOOK AT MY SCREEN
HERE FOR A HOT MOMENT, THE
SECTORS MOST PERSONALLY
AFFECTED BY THE PANDEMIC REMAIN
WEAK WOULD HAVE SHOWN
IMPROVEMENT, THEY ALSO TALKED
ABOUT PROGRESS IN VACCINATIONS
REDUCING THE SPREAD IN THE
UNITED
THIS PROGRESS IS STRONG POLICY
SUPPORT INDICATORS OF ECONOMIC
RECOVERY ACTIVITY
AND EMPLOYMENT HAVE
STRENGTHENED SO IN A TARGETED
APPROACH, WHAT ARE SOME OF THE
NEXT STEPS THAT YOU EXPECT THE
FED
TO ENACT TO REALLY MAKE SURE
THAT WE'RE COMBATING THOSE
AREAS OF WEAKNESS IS THAT THEY
LAID OUT.
>> YEAH, NO DOUBT ABOUT
IT AND I'M GLAD YOU MENTIONED
THE JOBLESS CLAIMS IN THE
FOUR-WEEK MOVING AVERAGE SO
THIS IS THE 10TH CONSECUTIVE
WEEK WITH THAT FOUR-WEEK MOVING
AVERAGE IS PULLED BACK WHAT
POWELL HAS SAID IN PREVIOUS
PRESS CONFERENCES AFTER FED
MEETINGS IS THAT THEY'RE REALLY
LOOKING FOR
A STREAM. OF POSITIVE
EMPLOYMENT REPORTS BEFORE
MAKING ANY DECISION ON MOVING
POLICY LEVERS IN WITH THESE
GOALS BASED APPROACH WHAT DOES
THAT MEAN IT MEANS MORE
PROGRESS ON THESE BROAD
INDICATORS OF LABOR MARKET
HEALTH LIKE THE EMPLOYMENT TO
POPULATION RATIO FOR EVERYONE
AND THAT ACTUALLY TAKES
AND DEMOGRAPHIC CONSIDERATIONS
AS WELL SO WE'RE RECOVERING
THERE BUT WE'RE STILL 3
PERCENTAGE POINTS SHORT OF
WHERE WE WERE BEFORE THE
PANDEMIC HIT.
BUT YOU KNOW THE INDICATIONS
ARE PRETTY SOLID HERE AS
VACCINATIONS RAMP UP AS SCHOOLS
REOPEN AS JOBLESS BENEFITS
EXPIRE, I THINK WE'RE GOING TO
SEE MUCH STRONGER JOB NUMBERS
GOING FORWARD ALREADY SEEN AN
ACCELERATION BUT IN THE CONTEXT
OF A EMPLOYMENT
REPORT STATE UNDERSHOT
EXPECTATIONS. I THINK WE'RE
GOING TO START COMING IN ABOVE
EXPECTATIONS. IN THE SADDLE
PROBABLY START TO GET CLOSER TO
MAKING AN ANNOUNCEMENT ON
TAPERING TOWARDS THE END OF THE
YEAR. THE FALL OR THE WINNER,
BUT WE THINK THAT WILL BE DONE
THIS YEAR AND THAT'S NOTHING TO
WORRY ABOUT I MEAN IN THE
CONTEXT OF A RECOVERY THAT'S
MOVING ALONG THAT'S APPROPRIATE
IT'S INAPPROPRIATE TO BE
RUNNING
MONETARY POLICY. THIS YEAR IN
THE THROES OF A V-SHAPED
RECOVERY EXTENDING INTO NEXT
YEAR IN THE EXACT SAME WAY AS
THE FED WAS RUNNING IT.
A YEAR AGO WHEN THE PANDEMIC
HIT THE ECONOMY FACE PLANTED
AND SO
I THINK YEAH I THINK WE'RE ON
TRACK HERE THE OUTLOOK IS IS
PRETTY POSITIVE IN MY OPINION
AND SO JUST TO KIND OF
SUMMARIZE THIS
THIS PORTION.
>> THE CONVERSATION AS WELL
AROUND WITH THE FED PUT OUT
YESTERDAY AND WHAT WE'RE
EXPECTING GOING FORWARD IT
SEEMS THAT THEY'RE LOOKING AT
EMPLOYMENT TO
JUSTIFY INFLATION. IS THAT THE
CORRECT WAY TO LOOK AT THIS AT
THE END OF THE DAY.
>> YEAH LABOR MARKET SLACK IS
PROBABLY THEIR MOST IMPORTANT
VARIABLE THEY ARE WATCHING
INFLATION. THESE NUMBERS THAT
HAVE COME
IN REALLY. THERE YOU KNOW THEY
BELIEVE IT'S PROBABLY
TEMPORARY, BUT THEY'RE NOT A
100% CONFIDENT IN THAT THERE'S
SOME UNCERTAINTY AROUND IT, BUT
THE FEDS ESSENTIAL MODELS SAYS
IT'S REALLY SLACK IN THE
ECONOMY, THE DRIVES INFLATION.
WE STILL HAVE SLACK OUT THERE
SO THEY THINK SOME OF THESE HOW
MEETINGS ARE GOING
TO RECEDE ALL OF THAT SAID WITH
FURTHER IMPROVEMENT IN THE
JAIME THE EQUILIBRIUM CONDITION
CHANGING AND SO WITH DAD IN A
GOALS BASED APPROACH TO
MONETARY POLISHED POLICY THE
FED WILL ALSO BE CHANGING ITS
MONETARY STANCE, BUT VERY
GRADUALLY, YOU KNOW THE MEDIA
AND DIED IN THE DOT PLOT NOW IS
LOOKING FOR 2 RATE HIKES BY THE
END OF
2023. WE COULD VERY WELL BE AT
FULL EMPLOYMENT BY THE END OF
THIS YEAR EARLY NEXT YEAR SO
THAT IS NOT GOING TO DERAIL
THE RECOVERY.
>> WITH THOSE INTEREST RATES
AND THOSE HIKES LOOK LIKE IF WE
SAW THEM BY THE
END OF 2023 AND PERHAPS 2 OF
THEM BY THAT POINT HOW WOULD
THE CONSUMER FEEL BACKED
ESPECIALLY IN AN ENVIRONMENT
THAT HAS BEEN INCREASINGLY
ACCOMMODATIVE ESPECIALLY
ACCOMMODATIVE I
SHOULD SAY OVER THE COURSE OF
THE PAST 12 MONTHS AND SEEMS TO
BE THAT WAY
AT LEAST FOR THE FORESEEABLE
FUTURE UNTIL WE GET TO SEE SOME
OF THOSE ADVANCED DISCUSSIONS
WHERE IT SEEMS LIKE THE
TAPERING IS GOING TO BE SO
RATED WHERE INTEREST RATE AND
THOSE PIPES ARE GOING TO BE
BACK ON THE TABLE FOR
DISCUSSION, YOU KNOW WHERE WILL
THE CONSUMER START
TO CONSIDER THEIR OWN EITHER
ACCELERATION OF BIG TICKET
PURCHASES AND AND WHERE THAT
WOULD SHOW UP OR EVEN
BUSINESSES WHO HAVE BEEN.
BECOMING ACCUSTOMED TO THIS NO
OR LOW INTEREST RATE
ENVIRONMENT.
>> RIGHT EXACTLY IT'S A GREAT
QUESTION SO I THINK THE
CONSUMER IS GOING TO BE JUST
FINE.
WE HAVE THE SUPER RAPID REBOUND
IN TOTAL LABOR MARKET
COMPENSATION, IT'S ALREADY BACK
ON ITS PRE COVID TREND GROWTH
PAST AMAZING THAT NEVER
HAPPENED AFTER THE LAST
RECESSION,
NOT EVEN CLOSE AND SO THINKING
OUT YOU KNOW 2 YEARS FROM NOW
IF THE FED IS RAISING RATES
VERY SLOWLY THAT'S IN THE
CONTEXT OF MORE JOBS, HIGHER
YOU KNOW HOUSEHOLDS HAVE A HUGE
BUILDUP IN LIQUID ASSETS THAT
THEY CAN RUNDOWN GOING FORWARD
AND I SPEAKING IN YOU KNOW IN
IN AGGREGATE NOT EVERY
HOUSEHOLD IS IN AS GOOD A SHAPE
AS EVERY OTHER BUT IN AGGREGATE
THERE WILL BE ENOUGH.
SPENDING POWER TO KEEP DRIVING
THIS ECONOMY FORWARD IN THAT
MODEST RATE HIKES ARE REALLY
GOING TO TO DISTURB THE
BUSINESS CYCLE IF THE FED HAS
THE PROJECTIONS WRONG IF I'M
WAY TOO OPTIMISTIC AND THEY'RE
TIGHTENING POLICY THEN THAT'S A
DIFFERENT STORY BUT I DON'T
THINK THAT'S WHAT WE'RE LOOKING
AT HERE, WE KNOW WHAT
INDICATORS WITH
FLASH RED IF WE WERE HEADED
INTO THAT KIND OF A SCENARIO
SOMETHING LIKE THAT WAS
HAPPENING AT THE END OF 2015
WITH THE FIRST FED RATE HIKE
BACK YOU KNOW DURING THE
YELLING AND THEN THE FED
TO STOP, BUT WE'RE NOT SEEING
ANY OF THOSE WARNING SIGNALS IN
CREDIT
MARKETS, THIS SO I THINK THE
OUTLOOK IS PRETTY SOLID FOR THE
ECONOMIC RECOVERY. IT WILL BE A
LITTLE CHOPPY OR FOR EQUITY
MARKETS. BUT THAT'S OKAY
THERE'S ALREADY BEEN HUGE
GAINS THERE. SO THAT'S TO BE
EXPECTED. MICHAEL TO OUR CHIEF
ECONOMIST AND CHIEF MARKET
STRATEGIST AND THEN CAME
MICHAEL I DON'T KNOW IF OUR
VIEWERS CAUGHT THIS AS WELL AND