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What to expect from the September Fed meeting

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Chris Campbell, Kroll Institute Chief Strategist & Former U.S. Assistant Treasury Secretary, joined Yahoo Finance Live to discuss what he's expecting out of this week's Fed meeting.

Video Transcript

[MUSIC PLAYING]

- The Fed kicking off its two day policy meeting today. The big question is whether or not they're going to announce tapering, what that timeline looks like, and also whether the increased risk out of China, if that's going to affect the talks at all.

We want to talk a little bit more about this with Chris Campbell. He's Kroll Institute's chief strategist and also former US assistant Treasury Secretary. Chris, it's good to see you again. I guess the big question, what do you think is going to come out of this week's meeting from the Fed?

CHRIS CAMPBELL: We actually we expect to see a little bit more progress from what we saw in the last meeting but not much more. I think they'll suggest that we're moving or inching closer to that point we're going to be tapering. I don't expect there to start calendaring when they're going to start tapering but certainly suggesting that they're going to start approaching and we're closer to the tapering date.

- Hey Chris, good to see you. All this talk about the Fed and tapering, for most of us, what are the real world implications? I mean, we just talked about it last segment that we won't see an interest rate increase probably for at least 12 months, right?

CHRIS CAMPBELL: At least. I think, look, I think the Fed will do everything they can, as I've said many times, they'll do everything they can to prevent an interest rate changes because of the pressure it puts on the public spending markets and the borrowing markets.

We already see right now, Adam as you know well, that the challenge in D.C. have just increased the debt ceiling. If the Fed increases interest rates at all in a significant way, that's going to make sure that-- that makes it harder, for sure, for us to borrow money but also makes it more important for us to borrow money because we're going to spend all of our money servicing our debt.

- Chris, the risk out of China, there's contagion fears that we initially saw, it looks like in the market yesterday, subsiding a bit today. We haven't really seen too much movement, I should say, in the broader markets. How are you looking at the risk out of China and how concerned US investors should be?

CHRIS CAMPBELL: Look, I think that we're on a path that's going to be very complicated with China for quite some time. Most China observers, myself included, suggests that there is going to be a ramping up of pressure, we'll see what happens in Taiwan and a variety of other things.

But we see some indication that there's some debt challenges in China and it's going to be up to China to see. It will be very interesting for us in the States to look at China and see what Beijing does.

Does it bail out the companies that perhaps are in a debt challenge? Does it not? And what does that portend for the future of the markets in China? And what sectors and who and what companies Beijing allows to survive what not? Which ones they chose not to allow to survive.

- Chris, you brought up the debt ceiling battle underway in Washington and it would be curious to see if anyone asks that kind of question or even the fight over infrastructure questions to the chairman during the press conference.

But I'm curious, this is more a New York City centric thing, but if the proposals to raise taxes go through unamended, we're looking at a potential tax rate on the highest earners in New York City, of 61.2%. What do you think that would do to people? I mean, some of the people that you deal with on a daily basis?

CHRIS CAMPBELL: I think a lot of our clients and I look, we're having these conversations right now and I'll lean 62% on hirers, mostly in the finance world. I was going to put a lot of pressure to make sure that they don't turn back to New York, that they could actually hollow out the major cities in the coast. You know, and New York and California probably being the most difficult and hard hit in those challenges.

But, again, far be it from me to tell the Democrats what to do. But I think, as our economies reopening and as large cities are struggling to come back and many people have migrated through COVID to low tax jurisdictions, Texas, Florida and others, I think there's going to be hard choices to be made.

Do they go back to New York or California, San Francisco or do they stay in the low tax jurisdictions? And I think there's about 15% tax differential between Southern Florida and New York, that's a big number.

- Well, Chris, real quick before we let you go. Adam touched on it quickly but the recent revelations by a couple of the Fed officials who have traded stocks, other assets here over the last year and a half or so, lots of speculation as to whether or not this could potentially come up when we hear from Jay Powell tomorrow afternoon. I guess, what are your thoughts on that and how big of a problem does this potentially pose or does it at all?

CHRIS CAMPBELL: I worked for the administration as you know and I worked on Capitol Hill for some time, I was precluded from trading stocks and had a significant disclosure requirements should I have chosen to trade stocks in any of those positions. I think there's a lot of responsibility to put on the Fed and Fed governors and people who work for them to maintain a presence and even an optics that they are free of influence of any way.

And so I think that there's obviously an ongoing investigation going on, I strongly suspect that Jay Powell is going to have to answer questions on this. I suspect that he knows those questions are coming and this is on the backdrop, of course, as the President Biden is going to choose who he nominates to be the next Fed chairman. Should he renominate Jay or perhaps someone new?

And I think this is going to color some of that argument and I think that it'll be, again, as someone who knows Powell well, it's going to be very fascinating for me to watch and see how he overcomes this. And I'm sure that the ongoing internal investigation will be something that's going to be robust and I'm sure it'll lead to some different policy challenges and policy implications at the Fed

- Chris Campbell, always great to see you. A chief strategist with Kroll Institute.