The Fed could engineer a goldilock type of inflation: Baker Boyer Bank

John Cunnison, Baker Boyer Bank Chief Investment Officer joins the Yahoo Finance Live panel to discuss the latest market action.

Video Transcript

AKIKO FUJITA: And John, you were talking about some of the macro dynamics we've been watching. Of course, we're coming off of a session where we saw really disappointing jobs number there. But we heard from Mary Daly over at the San Francisco Fed earlier talking about the inflationary pressures, how she sees it, a bit still as transitory. How do you see all this shaping up for the markets right now?

JOHN CUNNISON: Well, the transitory case that she's making is our base case. That's what we think. However, we're an asset allocator that's got to be prepared for a range of outcomes. So when we look at that, what's the case that some of the inflationary pressures that we're beginning to see, what's the likelihood that that could be persistent? I think that it's material, and we can see that in the way that the markets are pricing the potential for a more persistent inflation. And again, it's a less than 50% likelihood we'll see persistent inflation that would mean higher than 3% going on five years. But is that something that we want to be protecting against?

I think the other thing that's playing out here is with the macro story we're seeing with central banks and with governments getting involved in markets, kind of a story that's sort of underneath all of that is a move toward, I guess, I would say, a more industrial policy based economic policy, I guess, a little more nationalism. And when we think about the case for natural resources in an environment where people are going to want to secure that source, I think that you put those two things together. And natural resources for us are something that are a natural thing to be adding to the portfolios of the [INAUDIBLE].

ZACK GUZMAN: Yeah, when you talk about natural resources, how much of that is kind of levered to oil here and what we're seeing play out with this current pipeline facing their issues and kind of it being, for lack of a better term here, the spark that could start a pretty serious fire? When we think about the upside targets for an energy and commodity supercycle here, how would you be allocating maybe a portfolio relative to growth maybe one, two years ago, now shaping up for where we go from here in the pandemic?

JOHN CUNNISON: It's a really great question. When we looked at a couple of years ago, we were in this very low growth environment. And really, I wouldn't argue that when we went into the pandemic, we were late cycle. But low growth, where are growth themes, when you want that top line revenue growth number to be strong, growth was just doing incredibly well. I think now, we're seeing a bit of a cycling of that. So we're going into a period where growth could be incredibly strong.

I'm not sure the pipeline plays as much into our thesis. You know, it's nice to see if you're invested in natural resources, at least for a moment. But the longer term trend that we're likely to see is that there's just be a real resurgence of demand as we come out of the pandemic. We could see natural resource prices begin to increase. We've seen some of that already. But I think it has a ways to go.

And even if we're going back to some sort of a new normal in the economy with slightly higher levels of growth, and we think that the Fed could well engineer, you know, something of a Goldilocks type inflation, where we're between 2% and 3%. We think that's entirely possible, in which case, you know, the growth trajectory from here looks quite attractive.