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U.S. economy to see strongest growth since 1950: Angeles Wealth Management CIO

Michael Rosen, Angeles Wealth Management CIO & Co-Founder, joins Yahoo Finance Live to discuss outlook on the economy amid FOMC published statements.

Video Transcript

ALEXIS CHRISTOFOROUS: Let's bring in Michael Rosen now, CIO and Co-Founder of Angeles Wealth Management. Michael, I'm taking a look at the market here. And, you know what, we're still lower we were before the announcement. Looks like nothing has changed after the announcement. The Fed is pledging continued support here, saying we're not going to move on interest rates, we're not going to stop the stimulus, until we're really at a better place in the economy. Why isn't Wall Street rallying on that?

MICHAEL ROSEN: I think no one really believes what the Fed is saying. And people should pay more attention to what Jay Powell has said. It's been very, very consistent. The Fed is not going to do anything for the foreseeable future. And, you know, barring some extraordinary shock, I think, monetary policy is going to remain very accommodative for at least the next year or two.

ADAM SHAPIRO: So for those of us who are just average investors, we know that the Federal Government is going to go on a spending binge, financed through debt. And we've had guests tell us on the platform that that's going to lead to tightening liquidity and interest rates going higher. The Fed not moving means what for me, as I'm choosing whether I should be putting money in stocks, or maybe looking at bonds if interest rates are going higher?

MICHAEL ROSEN: Yeah, look, rates are creeping a little bit higher. But, you know, the context is still rates are very, very low. And Fed policy will remain accommodative for-- for some time. I said for at least another few years.

Inflation is currently running, you know, call it, let's say, 2 and 1/2% was the most recent read. Market expectations is for slightly higher inflation over the next year or two, but then coming down over the long term. So let's call it, say, 2 and 1/2%. High-quality bonds, treasury bonds, are still yielding below the rate of inflation.

So in real terms, investors are actually losing money, losing purchasing power, by investing in high-grade bonds. It's really not a place yet for-- for long-term investors.


SIBILE MARCELLUS: I hope you're all right there. It sounds like your machinery--


SIBILE MARCELLUS: --might have fallen. All good there. I'm really interested in terms of the labor market. What are your thoughts on any actions the Fed might consider taking? Or are they just going to wait and see, as we see the unemployment rate still be at 6%?

MICHAEL ROSEN: Well, actually, there's been a significant change in the Fed's view on how to change monetary policy with respect to the labor market. They have now quite clearly said that they are looking for full employment, even for those who have been marginally employed in the past. Meaning those with less education, younger workers, those who typically have much higher unemployment rates than the general labor force.

But until they see really close to full employment for even the marginally employed, they're not really going to change a monetary policy. Which is why I believe it's going to take at least another year or two before we can really think about whether that's likely or not. So there actually has been a shift here. But historically, the Fed has looked at sort of the average unemployment rate, but now is focusing much more heavily on the marginally employed to ensure that there's full employment for-- for that class of workers.

ADAM SHAPIRO: Well, if I'm an investor listening to that, what-- what timeline, then, does the Fed really have? Because if they look at the marginally employed, which has always been kind of greater in number, it seems they can continue this past this year, next year, even 2024.

MICHAEL ROSEN: Yeah, that's-- that's absolutely a possibility here. And that, of course, does raise concerns about potentially higher inflation down the road. If the Fed is-- remember, the Fed has a dual mandate of maintaining full employment and moderate-to-low inflation. And, of course, there could come a time-- we're not there yet-- but there could come a time when those are in conflict. And we'll see what the Fed does at that point.

I think what they have said so far is that they will lean at the margin to favoring slightly higher inflation in order to try to get full employment, again, even for the marginally employed. That, of course, raises inflation risks down the road.

Again, it's still premature to-- to say that this is going to be a concern. The markets have not priced in significantly higher inflation. But certainly, given the change in their policy with respect to full employment, it does raise the level of concern that perhaps inflation will exceed expectations.

SIBILE MARCELLUS: And Michael, maybe one of the reasons why we're not seeing investors really cheer on, like, oh, economic recovery, I mean, is what the US going through right now more of an economic restart than an economic recovery? I mean, what are your thoughts on that?

MICHAEL ROSEN: Oh, no, this is-- this is-- this is the-- 2021 will see the strongest growth in the US economy since 1950. This is an extraordinary rebound. And it's absolutely real. And I'm not sure investors have sort of fully embraced how much on fire this economy is.

Now, of course, put this into context. Last year, 2020, was the worst year for economic growth since 1950. So we're-- in some sense, this is really just a rebound from what we-- what we saw last year. But the strength in the economy absolutely is real. And it's likely to be sustained certainly at least through this year, sometime into next year.

Beyond that, a lot of uncertainties and questions about the-- the long-term sustainability of economic growth, particularly as you see debt rising at the government level, taxes likely to go up. So there are some real long-term concerns about-- about the sustainability of economic growth. But certainly, in the near term, the next few quarters, we will see really record levels of growth that-- that really no one in this generation has ever seen before.

ALEXIS CHRISTOFOROUS: All right, Michael Rosen of Angeles Wealth Management. Thanks so much for being with us.