Fed Keeps Zero-Rate Outlook

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio, or watch us on YouTube search Bloomberg Global News. Kathleen Hayes, Global Economics and Policy editor at Bloomberg News, with us in our New York City bureau. Dave Wilson stocks that at Bloomberg News on the remote access from New Jersey. Kathleen, I think, heading into the studio, you said there's going to be

some headlines. Well there are, and there are some very important ones, Carol, but you've got to look just a little bit deeper to see seven eight of eighteen Fed officials see at least one three raid hike. Now a

change in liftoff. No, it's not a majority yet, But at the January excuse me, the December meeting, because you know, they changed the dot plots their summary of economic projections every three months, there were only five, so you see, you're going to get a little more sense that more saying, well, the economy is going to be stronger than we thought. Listen to this lat you really need more details now on on the what they're doing with their forecast real GDP.

In December they saw four point two percent for the year. They boosted that by could amount. It's six point five percent on their radio screen. Now in December they thought the unemployment rate would fault to five percent. Remember what was up around fourteen percent. Now they think unemployment rate will end the year at four point five percent and next year at three point nine. Some people will say, hey, three point now nine sounds very much like full employment.

The substantial further progress that the feed is hoping to make. And you mentioned those COREPC eflation inflation numbers. What's interesting so important. In December they thought that the number would be one point eight. Now they see it at two point two, So they really have changed their outlook on the economy. This is all very important. A couple more things that you've got to have on the radar screen though, because there were some things that they have not done.

They didn't increase their bond purchases. They want to see substantial further progress. As I just said, um, they are not increasing the rate the interest on access reserves. That ties into some questions about money markets and how they could be royaled by some build ups in reserves. But

really there there's a lot of signals. I think that's one of the reasons why we've seen the bond market actually gained some ground and now the thirty years back even lower than it was the tenure about where it started. Because on the one hand, they didn't change anything. But at the same time, it looks to me like if anything's there a FED that sees higher inflation and stronger growth and they thought before maybe they will be on

the road to a sooner lift off. Not yet, But that's the kind of question we're gonna hear put in front of j pow. Bottom line, FED turning more hawkish are not really I don't think they're hawk as yet. I think so far they're just direct ignizing their progress in the economy because they say the virus is still the biggest issue and it's still out there. He did, Wilson, come on in here and give us the equity market reaction. What happened when these headlines came out? How our traders

are responding to this news. Well, you saw the SNP five hundred spike up to its highs of the day, so clearly it's going over well. And if you want to focus on one area of the market to sort of tied into the decision, it's the home builders. They were up. They immediately moved to their highs of the day after the decision came out, you know, and especially noteworthy got Lenar with the biggest gain in the SMP five hundred right now, it's up more than eleven and

a half percent. On top of what's happening with FED policy. You know, they came out and said they raised capital from Center Bridge Partners for a new single family rental business and they also plan a spinoff that will include uh their technology investment. So there's a company story to accompany the bigger story of where rates may be headed here. Yeah, good point eight. Two things I want to get you,

and I know Kathleen mentioned this as well. Fed's forecast sharing PC will rise to two point four percent this year before backing off to two in two point one percent in three Yet the median dots still show no rate hike through and this sentence retained from the January policy statement quote from the FED, the ongoing public health crisis continues to weigh on economic activity, employment, and inflation,

and poses considerable risks to the economic outlook. Listen, Kathleen, this mirrors what Tim and I hear from so many folks in the medical communities, the corporate communities, like, until we get this vaccine and virus under control, all bets are off. But look how much the cases have come down. Look how much the viruses we plateau too, And and that is troubling to a lot of folks in the

medical definitely. And I think, and I think it's kind of glass half empty, glass half glass have full, because if you talk to anybody anecdotally, just oh yeah, I didn't couldn't qualify for a vaccine. But I went over to Dwayne read to the to the Walgreens, and they had a bunch of leftovers at the end of the day. And yeah, I'm only twenty eight, but they gave me

the vaccination. I think what people were very negative about this what they called a slow start to a program we had never done probably about a hundred years, you know, nationwide vaccinations, and now they seem to be gaining some steam. So I think that's the thing that's interesting here. Yes, it still depends. Yes, there's tons of question marks over what happens next, right, because we know things can get

worse just when you think they're getting better. But it seems to me this that's been saying this for the last year. What you want to think, what Monterrey policy is going to do. Watch the virus. The quicker this that gets under control, the more businesses can reopen, the more people aren't afraid to go out and shop and spend money and fly and go to hotels, the quicker the economy will pick up. The longer that lingers, the

longer it will take. But I see Carroll in and Tim in this um, in this particular policy statement, in some of the other things they're announcing that uh, this is this is asymmetric to me. They're seeing what the economy is doing. Some people are saying, maybe we will raise rates a little sooner, So watch the economy. If it gets a lot stronger, a lot faster, maybe we

do get lift off sooner. If it doesn't, you know, maybe they really can't lift off until So Carol mentioned inflation, So I want to ask about that, Kathleen, because the medium FED forecast shows that core inflation right around or above its target in the next few years. One topic that we've heard so much from investors about is inflation. So what is the message that the FED is sending

investors about inflation and how it feels about inflation? Well, so far, just looking at the forecast again, because the core PCs you note um is two point two percent this year. But J Poll and others have made it clear we see a temporary kind of spike up in inflation as we adjust year after you know, one years, hence to the numbers that fell so much last year, and so there's been a lot of things and then pent up demand after the after not being able to shop.

But I think the fact that we see in the two year two percent two point one percent, the question will be J. Powell says, and many of them have said they don't mind seeing inflation at two point five percent, even higher. They wanted above two percent and staying there with two percent in to convince them it's time to lift off. Probably not. Yeah, good stuff, guys, Thank you so much, Really appreciate it. Kathleen Hayes, Global Economics and

Policy at at Bloomberg News. Dave Wilson Stocks. This is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes. Tim Stinovich from Bloomberg Radio. Of course, our top story on this Fed Wednesday is the FED will reserve keeping zero rates as expected, uh and in terms of the outlook, also going to keep rates pretty low for a while. Still season inflation bump as short lived in the future, So just giving us some indications of where they see

things going. Let's get into it with our round table. Yeah, let's do it. Ali Wolf is chief economist at Zanda, joining us on the phone from Irvine, California. Jeffrey Cleveland is chief economist at paid In and Regal on the phone from Los Angeles. They're not too far apart right now. Thanks to both of you for for joining us. Um Alie, I want to start with you your immediate reaction to this news. So this is a fun day for the

FED followers. What we saw. Obviously a huge revision by the Fed, but this was to be expected and it basically matches what we've been seeing from the private economists who have been putting out their forecast that GDP is going to be pretty remarkable this year as the economy opens up at at a way more rapid pace. And

I think a lot of us expected. Well, okay, so come on in on good to know, um, jeff Jeffrey, come on into In terms of your um reaction to the FED decision, well, I was gonna say, the distance between Irvine and Los Angeles depends a lot of the traffic, so eventually just a lot longer than you think. Yeah, the big the big thing here is they have a better economic outlook, better GDP growth, they have lower unemployment, they have a little bit higher inflation. Yet the media thought,

the media thought does not move for three is the key. Uh. It's this kind of tug of war that's going on with the financial market, with the bomb market in particular, where the bab market is saying, okay, better growth, higher inflation, therefore you need to hike, and the Fed is saying no, no, no no. That is the script from perhaps last cycle. That is not the script we're going to use. We're gonna keep rates at zero for longer. And so that's

a message they delivered here. Whether the market really believes it, Carol and Tim, that's a that's another question itself. Dare I say, Goldilocks economy, so unemployment rate gets better, although let's not forget there. You know these there are so many different measures of unemployment. It doesn't really look at um. There are millions who are out of the labor force altogether,

who just said I'm frustrated, I'm out of it. But dare I say, Jeffrey, that we are or could be headed for kind of a Goldilocks economy, some growth with low inflation. Once again, for investors, this is perfect. You have better growth, you have a little bit higher inflation, which is fine, and you have an easy fed You could mix in their very easy physical conditions as well. So I think this is a very good back drop

for risk assets fort for investors overall. I would ignore the unemployment rate, Carol, that four percent figure that gets bandied about. I would focus instead on the employment of population to fifty four year old, how many of them, what percentage of those are folks are employed. That's at seventy six right now. It needs to be over eighty before I even think we should have another phone call

about full employment. So that's a ways to go. Hey, Aley, come on in here and talk about the reaction among homebuilders right now, because this is something that that of course you watch closely at Zanda. You heard Dave Wilson earlier talk about housing stocks on a tear uh this afternoon. What's the reaction there. Yeah, So when you look at the housing market and you look at what's happened to the economy over the past year, you've basically had people

that have been forced to save. Now, by the way, this isn't just applied to the housing market. This applies to the wider economy. Here's people that have been forced to save. There has been student loaned forbearing, there has been three different rounds coming up of stimulus. And then you also have, which I think a lot of people forget, the underground economy, the hairdressers and the fitness instructors that we're still working under the table and also getting unemployment

insurance and also getting the stimulus. So when you start to add up all of those numbers, you really have people that were able to continue to work, flush with cash. And when you look at the housing market, well, certainly that's a game changer because people need to say, for a down payment to purchase a home, and all of a sudden because of what happened to the economy. Again, as long as you were employed, a lot of people

are in a really healthy position. That's going to drive growth, not only for the homebuilders, but also for the wider economy. Let's remind everybody. In just about thirteen minutes, a little bit under thirteen minutes time, we will take you to the Federal Reserve in Washington, d C. And to FED Chief J. Powell. His statement and his press commerce will begin at that time, and of course we will cover

it live right here at Bloomberg. Right now we're talking with Ali Wolf, chief economist at Zanda, Jeffrey Cleveland, chief economist at Payton and Regals. So Ali, let me ask you, though, the housing recovery and strength, how important is it though in terms of the upcoming economic recovery and and I'm I'm asking to with an eye on in some parts of the world, it does feel like we're in some parts of the country that we're starting to see, you know,

a shortage of supply. Yeah. So when we look at the housing starts numbers, or you look at how many homes are being built. For every single home that's built, three different jobs are created. And housing has been able to partly lead the recovery this time around because builders have been so active and on the new and existing homeside.

For every home someone purchases, they spend money elsewhere. They spend money at home depot, they spend money at target, and that helps those different companies along the way to the risk though, is as we're looking at the tenure treasury,

we know that that's closely linked to mortgage rates. Yes, mortgage rates are still historically low at three percent, but we just have to watch how high those go because really even pence fifty basis points starts to price people out of the market with how much home prices haven't gone up over the past year as well, Jeffrey, what do you make of of how the Fed is is

thinking about growth? The feed is even more optimistic one growth, as Chris Ansey points out in our in our live blog right now, the median forecast among economists survey by Bloomberg um the FED policymakers meeting at six point five. The Bloomberg Survey medium medium is six, so the Fed clearly optimistic here. Yeah, I don't know what the Bloomberg survey there's doing. I mean, I think the paid in the regal forecast for six and a half percent, so

it's right in line with the FMC median. I like that, So I would the way I would spin it to him is that the FED is finally caught up with paidon in regal more economics which actually probably should may be a little conserved at this point. I don't know why talk, yeah, talk, I mean, I mean, obviously it's you're joking there, but but like what why why were you guys? Why are you guys so optimistic? I mean,

and why do you go ahead? The optimist sick tone sorry to start the year was due to just the reopening. The fact that households do have a lot of pent up savings, depending on how you measure it, somewhere between one and two trillion, you know, or ten percent of GDP roughly, So that's a huge amount of money that will be I think unleashed as as the economy reopens. And then now another round of fiscal relief coming down.

So you know, all those things together, I think you can very easily get to a six six and a half percent GDP growth that you're maybe even some risk him to hire growth. That means that the thing is looking at a little bit further. I think we'll settle back down somewhere closer to two per cent or so. So it's not something that will persist beyond beyond one, but I think it's a very upbeat view for the year ahead. So Ali, you know, I asked Jeffrey about,

you know, a Goldilocks economy. Uh, you know, it took a while to kind of get things going coming off of the financial crisis, but we did kind of have you know, low and steady for a long long time, certainly something that financial market investors made them, you know, pretty you know, eager to take on risk in a low yield environment. How do you see it? Could we be setting up for once again kind of a low and steady recovery here? Well, I actually think it's gonna

be really robust when you look at history. So we've now put six trillion dollars into the system over the past year from just the Congress and from what they've done from the different stimulus packages versus one point eight trillion over multiple years last time around. And when a lot of US economists look at the data, we say, well, that's one of the reasons that it was so long

and protracted to finally get back. But what we've seen from the stimulus checks that have gone out so far, we can already learn from what consumers do with it. And so right now, this is data from the Chicago SPED. You can see fifty of the money gets spent basically right away, and then fifty percent of it gets saved. And some of that money is getting saved for things people can't do today but they can do three or four months from now. One vacation, go to restaurants, go

to bars. And so that's why I also feel really positive, I think, I mean, we've seen Goldman's forecasts or even higher than that six point five percent that we're seeing from the FED. But that's what gives me support about the economic recovery. But it's a spike alley, right, and then we start to settle down to kind of more normal levels. It is, but it depends, it depends on is it that one time vacation that you're going on. I know a lot of people are talking about they

want to do their take multiple vacation. I want to take ten vacations right now. Yes, so I understand that, But we also know that there's additional stimulus that's likely going to come on the infrastructure side, which fuels more longer terms uh growth too. So Jeffrey, the FED is optimistic, painting and Regal is optimistic. How quickly, in your opinion, does hirings start to pick up just in the next

few months. I think we could have three or four months ahead to know where you have million, a million and a half jobs added each and every month, so it can come back very very quickly. I think to me, that's the lesson the last night months, not just for the FED, but also for forecasters. People were very and I think it's justifiable last summer to be very pessimistic given the state of the world. It's time, but things have changed dramatically, especially in the last six or eight weeks.

Even so, we we've seen that as soon as things reopened, hiring will come back very quickly. We got a little taste of that last year, but I think that's what's ahead for the next I would say three, three or four months. Hey, Alian, Jeffrey, I want to ask you, is this kind of how we, fingers crossed, had hoped it would would play out after the deep decline and

the economy shut down shutting down last year? You know, Ali, isn't this kind of I know it's a lot of money being popped into the system, but isn't this kind of what we hope for rather than staying down for a longer time, which would have made it more difficult to bounce back. I think this is what we hoped for. But I would say at least my earliest forecast was more like a swouch shape. I thought that there would

be a little bit of economic pain. And I do want to temper what I just said with some of the labor statistics, because if you do look at the leisure and hospitality after so, that's obviously the sector that's been hit the hardest. Let's say tomorrow, because the economy opens up, every single one of those jobs comes back. Right, we go from nine point five million jobs shy of where we where we were last year to now five

million jobs shy where we are last year. So there's a lot of enthusiasm that okay, as we open up, and I just that it's you guys do There's a lot of enthusiasm on that front. But we still have some lingering pain with the long term unemployed, with the commercial real estate space that I think, honestly and not enough people are are acknowledging that there's a risk on that front. Tim and I talked about that all the time,

Like we're just driving around New York. It's just staggering the number of boarded up, shut down you know, retail restaurants, you name it, that are no longer there. Tim. Yeah, And if companies have employees have proven look to you know, mixed reviews from executives who we hear from pretty much each and every week about how they feel about employees

not being in the office. But if employees have proven that they can work in a hybrid environment or or remotely from home or coming into the office just a couple of days a week, that has serious repercussion for parts of the economy. So, Jeffrey, commercial real estate, is that something that might be another shoe to drop maybe this year or into next year. Well, I have to say, I think if you go back nine months ago, the the outlook was much more pessimistic, like we would never

return to the office. I think that's changed a lot. I think you see that change in price for for the commercial real estate sector in various ways, so maybe we should be a little bit more upbeat. It was like Carol, it was the U, the L, the W shaped recovery. It's much more like the U then, I think, or even like the V. You know, it's not the L or it's not the W, but that beings that.

I mean, I think there is some restructuring that needs to go on here, but that's that's something that happens every recession where you do have sectors that don't quite come back to where they were pre recession, and the capital needs to be reallocated. So maybe that that will

be focused on the on the c R E space. Well, Jeffrey, one letter you didn't mention was K, and it's the K shaped recovery that that we've been talking about for months that the people who have been at the higher end of the income bracket have done so much better than those at the lower end of what needs to happen in order for the recovery to be equal. The best thing that can happen for the K shaped type recovery to get the lower end back is to have

full and inclusive employment. So that's why I was so emphatic about five four year old corborate the population, which at seventy six we need back at eighty. When that labor market gets to that level of tightness, that's when the lower income stretches tend to benefit the most. We saw that in eighteen ten. I think maybe the Fed even learned its lesson that perhaps we preemptively hyped too much too quickly. Sort of we could have had a

even hotter labor market. So we need a hot labor market to help the bottom part of the K, which is just where we were a pre pandemic. Just three and a half minutes away from J. Powell of the Federal Reserve, he will be making a brief statement, followed by, of course, the press conference following that latest FED decision, wherewith here with Ali Wolf of Xander and Jeffrey Cleveland have paid an in regal guys. Um got a question for you about, uh, what keeps you up at night? Ali?

What worries you about the US economy? Right? Now, so I would say, and this is something that I'm sure people will ask Dave Powell on when he comes out for his press conference, is he has acknowledged that, yes, we're going to have this base effect with inflation, and

yes we're going to have um transitory inflation. But the question basically everyone is saying, we haven't seen inflation in the past, and going into this, we didn't see really high levels of inflation, so we shouldn't expect to see event. And I know there's a couple of different camps emerging, but we're living through a world of so many different unprecedentedge you know, we're talking about a top dollar amount

that we haven't seen. We're talking about that gap between the halves and the halves, not we're talking about the savings changes. We're talking about a goods economy that's thriving and a service economy that's not. And and eventually they both will maybe come up and they'll meet in the middle. But how high can inflation go? How long can the FED pulled off if the numbers are alarmingly higher than what they think, which I think at one phase throughout

this year we may see pretty alarmingly high inflation numbers. Jeffrey, same question. Do you what keeps you up at night? I think policymakers are always fighting the last battle and the battle last cycle. The lesson that policymakers seem to have learned is that they could have let the economy run a bit hotter or longer and not preemptively started the hiking cycle, and that would have benefited a lot of the labor market, and that maybe would have had

higher inflation. So they seem to think that it was there. You know, they're called they control inflation. I wonder about that. What if that's the wrong lesson and inflation, you know, has the mind of allsven by somebody else, and they'll be a bit surprised here by by a more persistent pickup. That's probably the biggest concern. All right, kind of leave it on that, guys, You were amazing, Thank you so much, really smart Inside. Ali Wolfe, chief economist Ad Zonda on

the phone from Irvine, California. Just around the corner. Jeffreyley, Jeffrey Cleveland, the chief economists at paid An in Regal, on the phone from Los Angeles. This is Bloomberg Business Week with Carol matt Sure and Bloomberg quick takes Tim Stinovich from Bloomberg Radio. Let's continue with our coverage of today's decision by the Federal Reserve their Open Market Committee in J. Powell's press conference shooting us right now. Great

to have back with us is Stephen Skanky. He's chief economic advisor at kill Point, former U S Treasuring White House National Security Council staff member based in Washington, d C. On the phone though from Missouri on this Wednesday, fed Wednesday. Also here Bloomberg Economics chief US economist Carlwick and Donna with a recap of the Power press conference as well, and he joins us on the phone in New Jersey. So, um, Carl, let me start with you. What stood out here? It

feels like it's almost a perfect report. Well, it certainly was a well well executed He spect the landing here. I think the market is getting ready to test the Feds resolved against both the backup and interest rates, and also some signs that maybe inflation pressures are starting to warm up, at least on the temporary basis. And so we have seen yields backing up to post to pre pandemic levels, although when we adjust those Treasury yields for inflation,

we're right back at zero. So you know, it's not while it looks like a large move and yields, when we take it in the context of how the economy is performing at the moment, Uh, it's not the type of backup in rates that could actually derail activity. So I was kind of surprised to see the market largely take this in stride. But but as expected, this is a fed that is not going to be faced by

short term uh deviations in economic data. So they acknowledge that yes, at one point nine trillion and fiscal stimulus is going to dramatically change the growth profile for but it's not going to have a long term implication for either growth or inflation pressures in the economy. So this is a fad that still thinks it's too early to even talk about talking about the exit. Steve, do you agree with that a assessment? How do you see it?

And is it fed right? And kind of their outlook, you know, feeling like we can keep rates low for a long time, that's right. Uh, it's actually quite phenomenal how how well J. Powell navigated around this issue of inflation and what are they going to do and what is their outlook. I think what was really impressive was that he just well not eat but but the F one m C just went into it head first. There

there's some very of economic rejections. They increased the growth outlook to six and a half percent for one versus four point two, unemployment lower at three point nine percent, and then interestingly right up front headline inflation at two point four in one UH and and then two percent in two core inflation two. So so when we see the numbers start to chick up, they're already out there in in front of it that they're saying, we expect this, and what we're doing has all of this in mind.

Uh and that should take a lot of the second guesting and and jitters out of the market when it comes as it will. Well, and Carl, was there something that wasn't asked that you kind of wish had been of J. Powell's or something that or after the press commerce you're still thinking, God, I'd like to go back

and kind of push him on some point. Well, Carol, the million dollar question, or maybe we should say multi trillion dollar question, as it pertains that the quantitative easing is this question or that the notion about what the exit sequence is going to be like, So we know from the get go it's pointless to ask him about when they're gonna raise rates or when they're gonna paper asset purchases because it's going to give those canned answer is that are that are well thought out answers, but

that that he's been giving for you know, the broader course of six months to a year depending on economic conditions, etcetera. Heads right, He's not going to come out and say, folks going to do this right, right exactly, So, as he said in his own words, we're not going to put pins in the calendar on those issues. It depends on economic data. But what is a very important question

here is the sequence of the exits. So if we look back to the FED response after the two seven to two nine two nine recession, they hike rates by about a hundred basis points before they started to let

the balance sheet unwind. The question is will they follow the same playbook this time around or is it kind of a first in, last out approach where maybe they deemed the policy response last time around to be ineffective, where they would like to taper asset purchases first and then follow through with rate increases, So that would have dramatic consequences for the financial markets. And unfortunately we're just not getting that question asked to the chairman just yet.

A great point, Uh, Steve, let me put that question to you. Is there something that you kind of wish you could go back now and you know, add on to the questioning of J. Powell or push them on, you know, one particular point. Well, it would be really to get a better understanding of of maximum employment and the variety of labor market indicators that they're using. It's not just the unemployment rate, it's not just labor force participation.

But they clearly have something in mind about what maximum employment looks like and how that has to be spread out with with some equality through the disadvantaged sectors of the labor market. Uh and uh. And they talk about it some, but but never with enough specificity that that anyone just trying to read the tea leaves separately could could come up with a judgment. Um. I understand that they don't want to chip their hand on that, but but I sure would love to ask the question and

here an answer. Yeah, Well, you know, and I've got to just put this to you guys. You know, it does feel like I talked about kind of a Goldilocks economy, Like, could we possibly, Carl, be getting back to that? I think very much we're getting back to that, Carol. We're looking for economic growth. I know the FED is taking growth at about six and a half percent this year. My own team is forecasting growth closer to seven point seven percent of this year. So we have very robust

growth numbers, which should drive the unemployment rate lower. Although I should add a footnote of caution. Those unemployment rate projections that FED put out there do not necessarily assume that participation in the economy rebounds where we were the pandemic.

So keep in mind that even though the last unemployment rate was reported at about six point two percent, if we adjusted for the collapse and participation that happened during the pandemic, we would instead be talking of an unemployment rate closer to nine. So, uh, you know, those forecasts don't fully take that into account. But back to Steve's point, Uh, the answer Steve, look all around you. You're in Missouri.

It's the show me state. Uh. And so Powell and his committee they want to see the evidence of wage pressures in the economy, so they wonder where full employment is, uh, they'll know that they've gotten there. It used to be talking about the whites of the eyes of inflation. Now it's the coattails of inflation, where they actually need to see inflation marching past them to actually know that we've

reached full employment in the economy. We've gone through four percent in the recent past was an inflationary We were at three and a half percent before the pandemic set in, and actually we're seeing inflation and wage pressures trending in the wrong direction. So while the said doesn't want to put a number around this, it's probably low three percent or maybe even lower territory, which is wow to things. Steven, then I want you to kind of back to this.

But there's two things that came from j Pal saying it's going to take time for ten million to return to work. He also said the time of tight unemployment inflation, that tie is long gone. So Steve come on in and layer on this conversation. Well, there there's probably closer to twenty million people who are who are unemployed. Um to the point that Karl made earlier, and I think I think most recently reported last week is that there are twenty million people still receiving in some form of

unemployment benefits related to the pandemic or otherwise. Uh. And that's a huge number. Uh. And when you when you when you try to count it up, obviously you get, as Carl said, the reduction in labor force participation, the people who haven't got their jobs back. Um, within labor force participation, the number of five million people who left the labor force just to take care of their kids when schools closed. Uh. And all of that comes back together.

And so when when jar poll says, uh, this isn't about estimates and guesses that we we want to see substantial actual progress, Carl said, marching past us with higher employment and in placing. Uh and to see it moving beyond beyond our target. Right. And I think that's that's that's critical. Uh, what with with the concern and care they have about the the employment situation, that that really

is going to be their focus. Uh. Maybe to the detriment of price stability, but I think we all hope not for the reason you just said, Carol, you know that pie seems to be broken Yeah, and the FETs. She's saying that several times that you know, the FETE is eyeing actual progress, not forecast progress, in saying that the things that they're putting out right now are forecasts. Guys, Um,

thank you so much. Really smart conversation here. Dr Steven Skanky, great check in with him again, chief economic advisor at kill Point, former U. S. Treasury and White House National Security Council staff member with us from Missouri. As we like to say, Carl Rickadonna, the best chief US economist at Bloomberg Economics, with us on the phone in New Jersey. This is Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes. Tim Stinovich from Bloomberg Radio. Let's talk about

the Drive to the close with David Speaker. He's president and chief investment officer at Guidestone Capital Management. Sixteen point three billion in assets under management, and there are small cap equity fund by the way, up nearly eighteen percent year to date, on par with the rise in the Russell two thousand. David with us on the phone from Dallas. David, uh,

interesting market year already and it's only mid March. How do you see it, and how does what the Feds say you think play into the market play for the rest of the year. Well, thanks for having me on, Carroll, and I would say, yes, it's been very interesting, and clearly the market liked with the hurt from the Fed today, a very devilish tone. No hikes until continuing to buy bonds and and and and do qui into the foreseeable future.

That's really been the key ever since the market bottom a year ago, has been with the FETE has done in terms of stimulus, and now we've got more fiscal stimulus courtesy of the federal government. That's also a fueling stock prices. Ultimately, what we want to see though, is a sustainable economic recovery fueled by consumer spending. Now, we had weaker than expected consumer spending in February, but that was pre stimulus. Um, we're getting better. Just a lot

of snow. There was a lot of stuff going on, right Yeah, yeah, a lot of snow, a lot of weather. We had some bad economic data. But going forward, the stimulus should be a key and and we really feel like this year we're going to see very strong economic growth and the markets should respond to that well. And it's interesting. I mean, listen, we have a story on

the Bloomberg. It's one of our most red Americans have one point seven trillion to burn and revenge spending binge, and you know, just talking about you know, we've been all pent up not spending money on anything, and you know that as the economy reopens, the expectation is that people are going to be out there spending big time. Yeah, that's a great point, Caroline. One of the things that we like in in our Small Calf Equity Fund, the guides Own Small Calf Equity Fund, is the opportunity to

see leisure spending take off. And so what you saw during the pandemic was a lot more spending on things that could support outdoor activities watercraft and bicycles and golf equipment.

So a company like Malibu Boats that trades at a very attractive sixteen times forward earnings multiple, a leader in high performance watercraft production, and a company that's mean some really nice recent acquisitions, we think they'll benefit from this trend as what companies like Dix Sporting Goods and Callaway Golf. This is something that's going to continue as companies as individuals start spending that money they've been holding onto over

the past year. This is a pretty remarkable stock tickers M b u U and I have to say, I've been talking and uh folks, I know, talking with people who are in the boating industry and sell boats. They said, it has never been busier than what they have been seeing for the last year or so, and in particular what we're seeing right now. But you look at m b u U. Uh, that was a stock that was trading at sixteen bucks at the end of TIFT. It's now an eight seven dollar stock. It has been consistently

higher and higher each year. Specifically, another name that you like is um an I T staffing company. The takers A s g and Virginia based talk to us about this company. Uh yeah, A s g N is a company that provides staffing solutions in the I T industry. And if you think about where the growth is in the economy today, I T clearly as a leader. Uh. We don't want to forget the fact that I T companies and the I T stocks are not performing well. But longer term I T growth is going to be

paramount for the growth of the economy. So a company like a s g N that can provide staffing solutions for technology companies. Um is going to do very very well. And they've also got a very attractive growth oriented m and a strategy that's very additive to their growth. And so that's another company that we own in the guides one small cath equity fund that we're we're very favorable

towards nineteen up another eighteen percent last year. UM. Let me also ask you really quickly about Q two holding. It's down about fifteen percent this year. Ticker is Q two qt w O just got about thirty five seconds. It's got a pretty high short position to what's your take here, Well, the valuation is kind of steep because they've made a lot of uh, they've got a lot of expenses related to their growth, but the popline revenue growth is going to be or more for the foreseeable future.

They provide cloud based services for small and midsides banks and seventy of their revenues are recurring, their subscription based and if you think about where the activity is going to be, the banking sector is going to benefit from this rebound in the economy and all the stimulus, and a company like Q two will be will positioned to benefit from that as well. Yeah, forward looking pe I

th seventy five. You weren't kidding that. It's deep. Um. Hey listen, good to check in with you really appreciate it. David Speaker, President and Chief Investment Officer of guide Stone Capital Management, sixteen point three billion in assets under management, with us on the phone for Dallas. Thanks for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com, and you can also listen to our radio show at two pm Eastern on Bloomberg Radio

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