Powell: Recovery remains uneven and far from complete

Yahoo Finance's Brian Cheung joined Yahoo Finance Live to break down the key takeaways from today's FOMC meeting.

Video Transcript

SEANA SMITH: Welcome back to Yahoo Finance. I'm Seana Smith, alongside my co-host, Adam Shapiro. And you just heard Fed chair Jay Powell wrapping up his press conference. The Fed leaving rates unchanged, announcing no changes in its policy here. Market reaction, we saw a brief bounce in the markets earlier today, although you can see the Dow now off over 100 points, so giving back most of those gains.

And Adam, a couple of things here that stuck out to me in this press conference, what we just heard from Powell, and also in the statement. I guess the first thing was really the upgraded view on the economy. He noted that he did see some improvement, the fact that vaccinations were picking up and also the fact that the fiscal support, the policy support that that has, of course, helped the economic recovery continue here.

ADAM SHAPIRO: That was one thing he mentioned, but there was also the fact that there are eight million plus Americans still out of work. And there was early in the press conference when he talked about the fact that the economy after this pandemic is going to be different in ways that we have not experienced in the past. So that was one of the things that stuck out to me when he talked about the fact that we're not near full employment and that the economy has changed.

SEANA SMITH: Yeah, noting some improvement, but also saying that we still do have a ways to go. And let's get to our Fed reporter Brian Cheung, who just asked a question to Jay Powell not too long ago. And Brian, let's start with what you were asking him. You asked him about financial stability. And his answer really stuck out to me because he did say that while there is improvement that needs to happen, he was saying that there are some asset prices that are high. And he is seeing at least some froth out there in the capital markets.

BRIAN CHEUNG: Yeah, the word that he used was "frothy." And by the way, my phone is blowing up right now because a lot of people are kind of buzzing about how I mentioned GameStop and Dogecoin. Now, my question wasn't about those specific asset valuations, but just broadly about the idea of reach for yield. We're seeing a lot of what some people might call irrational behavior in markets, especially for people who don't normally watch financial markets. So I wanted to get a pulse from arguably the most important financial figure in the world about what his view was of whether or not that presented financial stability risk.

The reason is because the Federal Reserve has said part of its framework, if financial stability risks run away, that could be a caveat for the Federal Reserve to tighten policy by either raising interest rates and/or paring back on its balance sheet expansion. And we heard from the Fed chairman in response to that question. He said that, yes, while it is indeed the case that some asset valuations are frothy was the language that he said, he didn't think that leveraging the financial system at large was a problem, which shows that, at least for the Federal Reserve's perspective right now, there's no pressures that would require the Federal Reserve to tighten policy earlier than it otherwise would have been.

Which means that the central banks' square focus is on continuing to provide that very aggressive stimulus, near zero rates, $120 billion a month in asset purchases, until you can get maximum employment, pulling in a majority or almost all of those over 8 million people who are out of jobs compared to pre-pandemic levels, while, at the same time, not having inflation overshoot for a persistent period of time its 2% target. If it goes moderately above that for a little bit, that's OK, as long as it's not persistent. And that, I think, was the big crux of what he was trying to say in that press conference, which just wrapped up.

ADAM SHAPIRO: Brian, that first question about is it time to start talking about when to start talking about tapering, they keep saying they're going to warn us when they're ready to do that. He said they're not ready yet. But what will that look like? Are we talking six months, three months, a year to prepare the economy and the investing world for that?

BRIAN CHEUNG: Well, the last thing the Federal Reserve wants to do right now, Adam, is put a calendar date for when they're going to pull their accommodation. That's why the Federal Reserve has emphasized that what they're trying to do here is outcome-based. They won't pull the accommodation until they reach the goals that they've set, which, again, the inflation and employment measures that I had just explained.

Now, in terms of whether or not the Federal Reserve is ready right now to begin pulling back, which would be reducing that $120 billion pace month of asset purchases, the Federal Reserve said it will do that at some point. But it needs to see substantial further progress first. Substantial further progress, which no one really knows what that meant, until the Federal Reserve chairman said a few weeks ago that it might look something like a string of jobs report similar to what we saw in March, where we had about a million payroll adds when you consider revisions to prior months.

Now, one million job adds would be very impressive, but when you, again, consider there's 8.4 million fewer people who have jobs now relative to pre-pandemic levels, that means that it's going to take more than two or even three months to get something closer to the pre-pandemic labor market. So I think when we talk about a string of months, it's going to be more than what we've seen so far. It might be longer than to the summer, which is why many strategists that have come on our programs, in addition to the Fed watchers that I've been talking to, have said, don't expect any sort of taper until early 2022.