Fed transparency to ‘calm some of the volatility’ in markets: Economist

Ataman Ozyildirim, The Conference Board Senior Director of Economics, joins Yahoo Finance Live to discuss proposed Fed hawkishness, gauge market reactions to the Fed decision, and comments on how the Fed will tackle labor market issues and its balance sheet.

Video Transcript

- Bring in now Ataman Ozyildirim, the Conference Board Senior Director of Economics. Ataman, what do you make of the Fed's tone at least in their statement? We know the press conference is still to come. But a little less hawkish you might say.

ATAMAN OZYILDIRIM: Well, overall, it seems like it's pretty consistent with what they've been signaling. And that is they'll be following a more or less sequential phased approach to, in effect, taking away the punch bowl as they say. The monetary conditions, liquidity is going to be slowly taken away. I think it's really signaling to the market that what they expect is in fact going to play out.

- Going to play out. But the volatility that we see, I mean, it's very fickle because the Fed has been pretty clear if you go back to the statements in the December meeting that this was all coming. We saw ups. We then saw the volatility that took us down this week.

And just watching today's trading action, exuberance you might call it, irrational as a former Fed Chair once said. We shot up after the statement came out. And now we're pulling back.

What does it take from the Fed to calm markets? We know the Fed doesn't play to the markets. But they don't ignore them.

ATAMAN OZYILDIRIM: Yes, well, certainly, market volatility is something that they're going to be watching. But as you said, it's not the primary factor in how they're making those decisions. I think giving a clear, transparent indications of what monetary policy is going to be for the rest of the year is going to help to calm some of the volatility and the jitters in the markets.

It's not too surprising to see that volatility during these periods of inflection. But the underlying dynamics of the business cycle are pointing to continuing growth. But with labor markets getting tightening and the high growth that we've seen is helping to push up inflation prices above and beyond all the disruptions that we've seen in supply chains and so on. So I think signaling to the markets where they're going to be going and not creating surprises is going to be pretty important in how they maintain that consistent policy going forward to bring the economy to a soft landing as one of your previous guests said.

- And then, Sir, how important was a quiet period that the Fed just had in basically gauging market reaction? We now know that there are four hikes pressed into the economy. What do we think about how they reacted to see what was happening in markets?

ATAMAN OZYILDIRIM: Yeah, I think that they have signaled that they're going to be watching the developments as they unfold and looking at outcomes, as we say, in the market in terms of what's happening with growth, what's happening with prices, and labor market. And I think they'll continue to do that while holding a steady anchor going forward in the rest of the year in terms of taking that phased approach with three or four interest rate hikes and then gradually taking away the monetary accommodation in terms of the quantitative easing, which they will likely start that in March as well.

- All right, we will have to leave it there. Thank you so much for that perspective, Ataman Ozyildirm, the Conference Board Senior Director of Economics. Thank you so much.