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Fed: Pace of the recovery has ‘moderated’

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Yahoo Finance’s Alexis Christoforous and Adam Shapiro along with Chris Campbell, Chief Strategist at Duff & Phelps Institute, discuss the latest notes from the Federal Reserve.

Video Transcript

ALEXIS CHRISTOFOROUS: Chris, thanks for being with us today. So you heard Brian do a fine job there of wrapping up what the Fed had to say. Any surprises in there for you, or is this basically a non-event for the market?

CHRIS CAMPBELL: Non-event, actually. I think it's exactly what we're expecting. You know, look, we're in the midst of some of the darkest times of the COVID crisis. The vaccines are rolling out, but rolling out slowly. And, you know, you have London and other localities moving to lockdown. We're actually looking at-- now contemplating a domestic freeze or some challenges on domestic travel here in the United States. So, not just international travel.

So yeah, I think it's we're in a difficult time. There's no way the Fed's going to do anything on interest rates at this time. And you can, if you layer on top of that, you know, the Bush administration now calling for $2 trillion in new spending, which will further put us in further debt, you know, it freezes the Fed from the flexibility they have of raising interest rates any precipitous way anytime soon.

ADAM SHAPIRO: It's good to see you. It's Adam here. And I was curious--

CHRIS CAMPBELL: Good to see you, Adam.

ADAM SHAPIRO: --about the change in language, the addition about the economy and economic activity has moderated. How would those of us who don't speak Fed speak regularly, how should we interpret that? They're alluding to a potential slowdown in the recovery?

CHRIS CAMPBELL: Yep, that's what I would expect. There's-- you know, like, you see localities and cities moving towards further restrictions, which is going to put a damper on small businesses and even some larger businesses. Larger states like California maybe easing a bit of restrictions, but you have, again, cities in our country and across the world. Even Dubai has been famously open and is now moving to close down. That's going to slow the economy and the worldwide economy here in the United States as well.

And so, we're in for some very difficult times. And, you know, it's that the-- and the inbox for President Biden was tough coming in. It's going to-- it looks like it's getting worse now economically.

ALEXIS CHRISTOFOROUS: You know, I'm curious to get your thoughts, especially because you were Assistant Secretary to the Treasury for financial institutions under the Trump administration. How you think a former Fed chief Janet Yellen, now Treasury Secretary Yellen, might work with the Fed, might work with Powell going forward, as she is now Treasury Secretary for this, the FOMC's first meeting.

CHRIS CAMPBELL: Yeah, that's a great point. Like, the largest question I got while I was serving at Treasury and certainly thereafter was the how independent is the Fed, how really independent is the Fed. And there's an incredible, incredible amount of importance between-- that there be separation between fiscal policy and monetary policy. And the Fed has a very important role on monetary policy. The Treasury has a very important role in fiscal policy.

But in the first time in the modern history, we actually now have a Secretary of Treasury, who was a Fed chairman. And so, she knows very well the insides and outs of the Fed. And so, it's going to be really something that we're going to be watching quite closely, how independent the Treasury allows the Fed to operate and how much the Fed demands they operate independently.

I know and work with Chairman Powell. And I'm certain that he will find a way to maintain independence. But, you know, through the various mechanisms the Secretary Treasury has at her disposal, you know, she has ways of convening the regulators and forcing some action. I think she'll be quite effective at using those tools in her arsenal. And so, in the coming days, weeks, months, and years, it will be really fascinating to watch to see how the new Treasury Department works with the regulators, specifically and especially at the Fed.

ADAM SHAPIRO: But there is a kind of silver lining in some of what we're looking at going forward, too. And that's in the statement where they talk about they're going to stop offering the regularly scheduled one-month term repo. Again, in non-Fed speak, in English, what most of us speak, what they're saying is the money markets have smoothed out. This is a good sign, right?

CHRIS CAMPBELL: Yeah, no, there's a lot of optimism I think in the chairman's statement. But there is obviously some pessimism, too. There's obviously-- they're looking at the role of the pandemic. Everyone thought and hoped that it would gone much faster than it is. So reaching that important herd immunity that we all have heard a lot about is likely going to happen much later this year. And we're likely not going to be able to place where we're going to be, seeing what kind of the new normal is post-vaccinations and post-pandemic and post-lockdowns until quite some time later this year.

And so, the Fed is going to stay tight. They're going to provide the liquidity necessary to the markets and make sure that the markets continue to operate as well as they are. It seems like the only sign that the stock market knows is up. The only way it knows is up.

Today is maybe a little bit of an indicator differently, but it's, in general, it seems to be on an upward trajectory, which is fantastic, again, for folks, and they have 401(k)s and other folks out there. But it's-- you know, like, there's a lot of challenges ahead. And we have to be very careful and be very prudent in this as to how we operate in these times.

ALEXIS CHRISTOFOROUS: Chris, you mentioned just the overall broader market and would love to get your take on what we're seeing playing out with speculative trading moving this market in the way that it is in just a handful of stocks. I'm talking, of course, about GameStop, AMC, Bed, Bath, and Beyond. Is this troubling? Should the Fed, the SEC, be taking a closer look at this in the future?

CHRIS CAMPBELL: Look, I'm quite certain that the reorientation of the SEC is going to lead them to probably carefully examine these types of trades. This is obviously putting retail investors up against, you know, the hedge funds, the big guys versus perhaps the little guys. And it's interesting. It's obviously very interesting to see this play out.

Social media has been a liberator and perhaps provided some democratization in lots of ways we saw in the last administration. We'll see in this new administration as well. But now, we're seeing it play out in the markets. And it's going to be interesting to see how this works. But look, I think the SEC will absolutely 100% pay very special attention to this because this is something that quite candidly could hurt a lot of folks, you know, chasing green arrows, that those green arrows perhaps may not be the most reliable.