What Will the Fed Do NOW ? - Cathie Wood

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01. sense of what a sense of what we're thinking now we know the market's acting up a bit uh unnerving some people it actually has come a very long way we've hit uh record highs even uh in the global indices now the morgan stanley all world or msci all world index uh so uh so we've come a long way and uh we think that this will be that refreshes uh just to get to the bottom line there but we'll get into why we think that uh after we go through uh the normal drill here so we start with fiscal policy uh then monetary policy will then go to economic indicators some market indicators and then we'll talk about the correction and what we see from here and as you know we're very long term in our focus everything we do has a five-year investment time horizon associated with it whether it's our research or our portfolio so we'll talk about the world from that angle in the context of what's going on today uh so on fiscal policy uh well i guess congress couldn't get it together for for another relief package so we do have the executive order in place which does defer payroll taxes into next year now if the president is to get re-elected i believe he's saying that there will be forgiveness of that of that deferral or at least he'll rally congress uh to try and get it um and if not then uh then workers will have to pay double taxes next year double payroll taxes in order to make up for this deferral so it is perhaps bringing some activity into this year that might a little faster than might otherwise have been the case but it wouldn't be as powerful as uh forgiveness of payroll taxes both for employees and employers uh for the rest of this year nonetheless it is something uh on uh monetary policy uh well we got uh some more information from a fed chairman powell in the last week or so uh and it uh the information was essentially uh you know we're very focused on both employment and inflation a little more emphasis than perhaps historically unemployment given where we are right now still a very high unemployment rate we'll get into that in a minute too given today's report but there was a very interesting nuance he introduced on the inflation side of the equation we thought he was heading in this direction essentially the policy response is going to be asymmetric if uh if inflation rises above 2 and based on the core pce deflator which is the inflation metric that the fed seems to like the best it now is at 1.3 percent but if it were to go above 2 percent the fed essentially would allow it to continue to move above two percent in order to make up for lost time we've been under under two percent for so long and uh we're not even sure the measure is correct if if arc is right that is overstating inflation even the 1.3 percent given all the deflationary forces at work in the economy but at least the fed is saying if the measure itself crosses two percent uh the fed is not going to react right away and uh on the other hand if it drops below two percent let's say it goes above two percent and then drops below two percent it will act right away so that's uh that's what we mean by asymmetric response so again the fed is reassuring the markets uh that that uh it has their back you wouldn't know it from this week but uh the fed certainly is um willing to err on the side of easing too much so that's that's information and and that's important on the economic indicators today was an important day uh the first friday of every month usually is uh we got the uh unemployment report unemployment dropped back into the single digits i think i think most people are very surprised that that happened before the election at all um we peaked at 14.7 as it turns out and uh we're down to 8.4 percent of course we were below three percent uh in january of uh february so still high uh by in relation to where we were before but essentially will nearly cut in half which is a lot of work done in just a few months some of the other interesting statistics out of the report just to underline how strong the economy is and how much of a v-shaped recovery uh we're in uh household employment was up 3.7 million now household employment is a different metric non-farm payroll employment uh what uh the survey measures is what businesses tell them household employment is what households tell them and so it captures more small businesses and so what i think this is saying is even small businesses are are getting back to work and we know that small business formations uh new formations have surged so what we are seeing is sure a lot of bankruptcies and probably a lot more to come uh but what these entrepreneurs do is turn around and and start all over especially now that they are being treated more like larger corporations and can declare bankruptcy uh and get out of out from under their debts um and i i still think that's being underestimated in here uh in terms of the positive impact that uh that is having on the economy uh the work week also went up now going up one 0.1 uh hour doesn't sound like a lot but that's the equivalent of i think it's the it's it's disproportionate in terms of its impact on economic activity relative to uh the increase in uh employment and what we saw in the manufacturing sector was a three-tenths of an increase um three tenths of an hour increase in the work week plus a one-tenth increase in overtime what this is telling us reinforcing is that businesses are scrambling to keep up with demand uh they have been way behind the curve they were behind the curve before the coronavirus and they were going to have to make up for uh a lost time even if the coronavirus had not hit they became even more conservatively postured during the coronavirus and um and now now that the consumer is is really coming out flying uh the um they're they're having to scramble to to catch up i don't know if any of you are experiencing this but uh when i go to the supermarket i'm seeing not in the toilet paper uh shelves but in many other shelves they are not as full as they normally are at my supermarket it's a little village market they try to keep everything fully stocked and they can't uh so i do think there's a bit of a scramble here even for food and so forth