Fed's Powell: U.S. economy faces ‘great uncertainty’

Invesco Chief Global Market Strategist Kristina Hooper joins Yahoo Finance’s Brian Cheung and Seana Smith to discuss Jerome Powell's remarks as the Fed chair notes the U.S. economy faces ‘great uncertainty.’

Video Transcript

SEANA SMITH: Well, you have been watching the panel hosted by Fed members, including Jerome Powell. You also heard from lael Brainard, just discussing how the coronavirus has been impacting the broader economy, really all aspects of the economy. They talked about jobs. They talked about what some of the different programs have done in order to try and help boost the economy.

So for more reaction, I want to bring back in Brian Cheung. And we're also joined by Kristina Hooper, Invesco chief global market strategist, once again. And Brian, I mean, just some of the headlines that stuck out to me was Powell really at the beginning just talking about this burden and how it's been widespread, but not evenly spread. And that's been placed on those who are least able to bear it.

BRIAN CHEUNG: Yeah, that's right. So you heard from Jay Powell. He actually just jumped in, in the question and answer portion of this discussion, which, as you notice, has been fairly informal. It's not like those usual speeches that you hear from these Fed officials. And Chairman Powell asking a lot of these participants, hey, are people going back to work? Are jobs starting to come back? As we know, in certain [AUDIO OUT]

SEANA SMITH: Brian, it looks like you just jumped on mute real quick. There you go.

BRIAN CHEUNG: Sorry about that, Seana. But as I was mentioning, Chairman Powell asking the question, are people going back to work? And I think this really signals that the Federal Reserve is interested in, I guess, the speed at which we might start to see a recovery happen, right? So we already know, based on what Fed officials have already messaged, that the second quarter, which would cover the period of April to June, is going to be very bad.

But as we get closer to the end of May, if people do start to come back to work, that could be a hint that we might get to see some of that recovery in the second half of this year, as the Federal Reserve has acknowledged.

But I think largely what is unique about this appearance is that the Federal Reserve is reaching out to specifically these community members who can share their side of things. You heard that very human story from BAFL CIO representative, who said that he had to drive his family member who had cancer around, you know, and trying to protect and make sure that his family wasn't getting COVID if they were already vulnerable, but have to go to a job that requires them to be interfacing with other people-- a very dangerous situation.

So this is a moment where the Federal Reserve, which we tend to associate with big macroeconomic terms that most people don't understand, is trying to kind of get to the mainstream level and message and have that conversation and dialogue about how this crisis is really affecting those on Main Street. Because as Chairman Powell had said, those are really the people that are being most affected.

SEANA SMITH: Yeah, and Kristina, I want to bring you back into the conversation here. Because when we talk about Main Street, I also just want to relate it into Wall Street and really, how Wall Street is digesting some of those comments from the Fed today, just exactly what it means just in terms of the pace and the timeline, potentially, of this recovery. Kristina, it looks like you are muted, so if you could take us.

KRISTINA HOOPER: Sorry about that. It looks like Wall Street isn't that concerned with the economic scenario because of the decoupling. But the reality is that the Fed is very concerned about it. We saw that today in the comments from Jay Powell and lael Brainard. And in fact, we also saw it in the FOMC minutes yesterday.

There was something that I don't think got a lot of attention, but the Fed staff talked about the base case scenario in terms of an economic recovery, but also noted that their bear case scenario was just as plausible. And so I think there is a lot of concern on the part of the Fed. Of course, the Fed has a limited tool box, and so many of the policies that it would employ to try to help the economy might benefit markets more than it actually benefits the general economy.

SEANA SMITH: Yeah, and Kristina, just how do you take this all into account when you're trying to come up with your own forecast and your own models? Because we heard Fed chair Jerome Powell saying in his prepared remarks that economic forecasts will be very difficult at this point, just because there is so many unknowns out there. Because a lot of it just pertains to really just trying to mitigate the spread of this virus.

KRISTINA HOOPER: Absolutely. There are so many unknowns. We just don't know a lot about the virus itself. We're learning more information on a daily basis. In addition, of course, we don't know what's going to come in terms of fiscal stimulus. How much are we going to get to maintain solvency for households and businesses?

So I think it's very, very difficult to predict what's going to happen. Our base case is that we see a slow and uneven recovery to start with. But certainly, the path of public policy, whether it's health policy or fiscal policy or monetary policy, will certainly help dictate the different macro scenarios and how likely they are to come to fruition.

BRIAN CHEUNG: Christina, it's Brian here. I wanted to ask. I mean, what do you think is the dashboard of data that the Fed Reserve is closely dialed into? We know this story on the jobless claims. We know this story on GDP. It seems like they already have expectations. But the Fed is going to have to start modeling their own forecasts in the June [INAUDIBLE] figures. What do you think is going to be the big key on the either prices side of things or on the employment side of things to watch for?

KRISTINA HOOPER: Well, I think that anything that is more leading in nature. So initial jobless claims are going to carry a lot of weight with the Fed. But I'm sure that they're going to look at a wide variety of data. Keep in mind when Janet Yellen was Fed chair, she looked at a mosaic of 19 different metrics just related to the labor market.

And so there's just, I think, a voluminous amount of data that the Fed will be paying attention to that will paint a mosaic that helps them try to divine where the economy is. But again, there are so many unknowns, and so much of it is health related, which is completely out of the area of expertise of the Fed.

BRIAN CHEUNG: Yeah, and as we mentioned, Kristina-- thanks again for pointing that out. But you know, the Federal Reserve is also really paying attention to the forward guidance aspect of things, right? That's something that the Federal Reserve is definitely going to have to watch here. Actually, in the Fed minutes yesterday, there was debate about whether or not it should be outcome-based or date-based. But regardless, a lot of things worth watching there.