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'The Fed’s duties have become extremely complicated against this backdrop': Former Fed Adviser

Danielle DiMartino Booth, CEO and Director of Intelligence for Quill Intelligence LLC, joins Yahoo Finance's Kristin Myers for a preview of Thursday's FOMC decision.

Video Transcript

KRISTIN MYERS: But I want to switch gears now because markets are not only just paying attention to the election, but also a decision out of the Fed's FOMC meeting in about an hour. I want to talk about this now with Danielle DiMartino Booth, Quill Intelligence's CEO and director of intelligence.

So Danielle, I think many people had forgotten that we even had an FOMC meeting. What are you expecting to come?

DANIELLE DIMARTINO BOOTH: Yes, this is very much out of the rhythm that we're used to. We're normally-- we're used to having a Fed announcement on a Wednesday, not a Thursday, but here we sit. There's very little that Federal Reserve officials can add at this point, except for the fact that they can acknowledge that there is-- that some of the better months of job creation are behind us. Obviously, there was disappointment in that ADP number, and we do continue to see initial jobless claims and continuing claims stay at historically high levels. And at the same time, we saw the service sector in the ISM data ratchet down to a five-month low.

So there will be an opportunity, I think, for Fed officials to nod to the slowing of the economy relative to where it's been these last few months, to the fact that the virus has become problematic again, and use this statement today as a reason to advertise, if you will, hey, you know what, we might be increasing our purchases at the December meeting.

KRISTIN MYERS: So Danielle, you know, 2020 has, I think, provided far more questions than it has answers, and one of the biggest questions has been, of course, stimulus, the Fed even coming out and saying that they could only do so much, and that they really needed Congress to step in and provide economic relief.

And yet, we still don't have a stimulus deal. We don't know when we will be getting one. How do you see the Fed approaching the problem, essentially of keeping the economy going in the middle of a pandemic without any sort of guidance on an aid package to the American people and to businesses?

DANIELLE DIMARTINO BOOTH: Well, you know, it has been something of a disappointment, I think, to many because the Fed's second mandate is maximizing employment. Their policies have shown how limited their capabilities are to deliver on that second mandate because they have shown that they're very much reliant upon Congress for further fiscal stimulus spending.

And if there is going to be any kind of protracted, drawn-out election process, that is going to lengthen further the time frame between when Congress can act during the lame duck session, even if it's just a small stopgap measure-- Mitch McConnell, he's been in the news saying that he's open and amenable to stimulus during lame duck. Of course, Congress has to pass a continuing resolution in order to keep the government open by December the 11th.

But again, as far as Fed policymakers are concerned, every week is like a dog year in terms of not having that fresh fiscal stimulus out there that policy [AUDIO OUT] willing to grow that Fed balance sheet and undertake more quantitative easing to help absorb that fresh treasury supply associated with new stimulus measures.

KRISTIN MYERS: Speaking of stimulus, Danielle, it's, of course, linked, many believe, to the elections, and to the potential next president that we might have or to the Congress that we might have. I'm wondering how you see as-- this is a currently contested election. How do you see that impacting the Fed's decisions going forward, especially around this key piece of stimulus?

DANIELLE DIMARTINO BOOTH: Well, again, the Fed's duties have become extremely complicated against this backdrop. They need for something to happen yesterday. They needed for stimulus to be passed prior to the election. Employment benefits are being exhausted, and there is the specter of the December 31st expiration of many of the Fed's facilities. Treasury Secretary Mnuchin has to agree to extend those facilities beyond December 31st, and if there is a change in administration, there's no saying whether or not that's going to happen or not.

So you know, until yesterday, when the possibility of a blue wave seemed to have come and gone-- it looks as if the GOP is going to retain control of the Senate-- there was a lot of anticipation. Bond yields were higher, reflective of [AUDIO OUT] the White House and the Senate were to change hands, there would be this massive blue wave of multiple trillions of dollars of stimulus spending that the Fed could then [INAUDIBLE] monetize going forward.

All of those dollar figures have shrunk greatly, which increases the pressure on the Fed to come up with a new tool in the toolkit. You might have thought that that would be yield curve control, but after trading yesterday, seeing those yields come down as hard as they did, there's not that much to control. So again, policymakers really are at the mercy of Congress and the new administration at this point.

KRISTIN MYERS: All right, well we will have to leave that there. Danielle DiMartino Booth, CEO and director of intelligence at Quill Intelligence. Thanks so much for joining us today.

DANIELLE DIMARTINO BOOTH: Thank you.