The Fed, Biden using the '70s inflation 'playbook' to solve supply problem, market expert says
Fed Chair Jerome Powell predicts ‘bumpy’ disinflation ride in Tuesday’s Economic Club interview
Weighing in on whether Federal Reserve Chair Jerome Powell and the Biden administration have the inflation situation under control, Federated Hermes chief investment officer of equities Stephen Auth warned they’re "relatively clueless" Wednesday.
"They're just not focused on the supply driven problems in the economy, the lack of labor or the lack of investment in commodities and energy. Everything they've done has been the opposite of that," Auth said on "Mornings with Maria."
"I think Biden has figured out, though, that he's got a supply problem. I think [Powell] understands that much more than the president does," he continued. "And he's got the '70s playbook in front of him now."
In a televised interview Tuesday, Powell discussed the state of the economy just hours before President Joe Biden’s State of the Union address where the recent jobs report and various spending bills were touted by the president.
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Powell had claimed the U.S. finds itself in "very early stages" of disinflation, or the rate at which inflation decreases, calling for a "bumpy" ride ahead. Auth responded to the chairman’s comments, saying it fits with the idea of a rocky inflation landing.
"We think we're getting the back half of this rocky landing, but we don't have the Fed cutting anytime soon. We're not sure when they stop. And we think the market's going to be kind of trading in a range here between 3,400 on the downside and 4,400 on the upside," Auth explained. "So we're telling investors: tune in to stocks, stay cautious, though, and stay defensive in stock portfolios."
Recent corporate earnings reports indicate a "difficult period" for the markets, according to Auth, who further argued that growth stocks likely won’t recover anytime soon.
While Americans won’t see a "harsh financial crisis" like 2007-08, Auth noted tech stocks are "doing terrible" and there’s more "negative surprises" to come in earnings season.
"We think there's at least another leg out there," the CIO said. "So those stocks, which are still a big hunk of the market cap of the indices, we think have some more down legs in them and valuation wise are expensive. So we're leaning into defensive stocks here, dividend payers."
Wednesday morning, Zoom announced it will lay off 15% of its workforce, preparing for what the company called uncertainty of the global economy. Buy-and-sell platform eBay is reportedly cutting 4% of its workforce for similar reasons.
As the labor sector starts getting squeezed, Auth doesn’t believe investors or lawmakers will see a policy pivot from the Fed.
"I think we're in an environment here of rates higher for longer," the market expert said. "I'm not buying the pivot or anything like that. So I think growth stocks are going to struggle, but I think you can do okay with dividend-paying stocks."
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Projections from the Fed's December meeting show that most officials expect rates to peak around 5.1%, which would imply quarter-point increases at their March and May meetings. No officials forecast rate cuts this year.
Powell – along with other Fed officials – have indicated they are willing to go higher if the data suggests the economy is still too high, a message he reiterated again on Tuesday.
FOX Business’ Megan Henney contributed to this report.