“Powell has been very clear … let’s get through the pandemic first”: Portfolio Manager
John Bellows, Western Asset Portfolio Manager joins the Yahoo Finance Live panel to discuss the latest with the markets.
Video Transcript
AKIKO FUJITA: Welcome back to Yahoo Finance Live. We're seeing Treasury yields retreating just slightly in the session today after initial jobless claims rose unexpectedly to 744,000. You see the 10-year T-note there trading at 1.63, the 30-year yielding at 2.32. Let's bring in John Bellows, Western Asset Portfolio Manager.
John, it's good to talk to you today. We got those FOMC minutes out yesterday that really sort of pointed to what we have heard from the Fed already that they're not going to move necessarily until that they get the data that suggests stronger employment and inflation as well. As we look to Jay Powell speaking over at the IMF meeting today, what are some of the risk factors that you're watching in the context of fixed income?
JOHN BELLOWS: You know, I think you're right about the minutes yesterday. It was a continuation of their message. There were some people out there who thought they were going to start talking about taper. That was not in the minutes. Instead, Powell has been very clear now is not the time to start talking about that. Let's get through the pandemic first. Let's see the recovery underway on the other side before they even start talking about that. So continuation of the message, continuing to be very firm and not talking about taper and focused on kind of providing continued support.
You know, as far as today, I don't think he's going to change that at all. We're still a long ways to go, 8 million jobs fewer than we had pre-pandemic. There's a lot of work to do. And until there's been more progress, I think they're going to stay the course. And that means not talking about taper and not talking about the exit. So that's what I expect today as well.
ZACK GUZMAN: Yeah, John, what's interesting is, you know, we have a few hedge fund managers on the show. And someone of them were talking about maybe early indications that they might be getting less dovish, maybe not in the statements that they make, but some of the moves that they're making kind of behind the scenes. I'd be curious to get your take on maybe what early inclinations might be where we do start to see that ahead of what we hear from Jay Powell in his statements. You know, you can say one thing, but do differently. Talk to me about maybe what you're watching there.
JOHN BELLOWS: Yeah, you know, I think maybe those fears are a little bit overdone. I think we'll have a very clear sense when the Fed wants to start tightening policy, once they want to start exiting. I think they're going to be very clear about that. And I think everything until then is, more or less, noise. Let me give you an example. Yesterday, there was a section in the minutes about raising the interest paid on excess reserves, people wondering whether this is some type of pre-tightening signal.
I think that's a misread. I think that's overreacting. This was a very small technical adjustment to money market rates, unlikely to have any material effect on kind of broader markets. And so I think investors need to look through the noise in this case and focus on the main message. And the main message remains, you know, as I said, which is continued accommodation, a lot of work to be done, and they're going to stay the course until they've made substantial progress. That's the message. And I think anything else is noise at the moment.
AKIKO FUJITA: John, I'm curious to get your take on what we just heard from Raghuram Rajan talking about concerns around the debt picture. He's essentially saying that, look, developed countries just can't allow the sovereign debt to grow, even if we are coming out of the pandemic. How are you looking at that debt picture, given the stimulus that's already come online and then this additional $2 trillion infrastructure that President Biden has proposed?
JOHN BELLOWS: You know, I thought Professor Rajan made a number of excellent points. And in particular, I share his concern with the efficacy or necessity of some of the spending programs. And but I think that as you kind of work through the implications of that, one of the implications is that by doing a lot of that spending, especially in what was recently passed, you're not materially changing the long-term growth trajectory.
You're not materially improving productivity. Those are things that Professor Rajan and I would agree view as very worthwhile. But instead, all you're doing is moving growth from one period to the next. And so, if you think about, for instance, the checks that were sent out, I don't think that's going to do much to raise the level of GDP in, say, '22 or '23. And so, instead, it just pulled growth rates from '22 and '23 into '21.
And what that means is we're going through a period where you're having very, very high growth rates elevated by this stimulus. But that needs to be kind of paid back at some point by lower growth rates maybe next year and certainly the year after. And that creates kind of a difficult dynamic for the economy. You kind of have a booming environment right now. We're going through that, a million jobs created per month. We're going to see high inflation prints.
But it's likely to be followed by a much more subdued period starting by the end of this year and into next year, where growth is slowing. And I think that could feel very different for markets. So as you think through the implications of those programs that don't increase long-term productivity, what do they do? They just move growth from one period to the next. And in particular, they move it into this period. We're having a lot of growth now. But perhaps take it out a little bit from subsequent periods.
ZACK GUZMAN: All right, John Bellows, Western Asset Portfolio Manager, appreciate you bringing us those insights on what investors should be watching for. Thanks again for the time.
