Fed will not lift rates until 2023 at the earliest: Economist

RSM Chief Economist Joe Brusuelas joins Yahoo Finance’s On The Move panel to discuss how the world economy is at risk over the coronavirus crisis.

Video Transcript

JULIE HYMAN: Joe Brusuelas is RSM chief economist, frequent guest on the program. Joe, you just need to unmute yourself so we can chat about what you expect from Jay Powell. Joe, by the way, is in Austin, which you can see laid out beautifully behind him. So Joe, I imagine you don't expect any change in rate. Do you expect any further stimulus or action on the part of the Fed to be announced today?

JOE BRUSUELAS: No, not particularly. I think the big thing is you're going to see the layout of the first forecast since the collapse post-pandemic. So I think that's really the most important thing. We'll all be looking at those dot plots. So what is this all going to tell us? Fed's not going to lift rates till probably 2023 at the earliest. You're going to see a pretty big downward revision on the forecast for-- on a year-over-year basis, around 6%, and then I'm expecting a 2021 rebound of around 3.5%.

I think what's most important is especially the question and answer period in the presser, where Mr. Powell will be asked about what's called yield curve control, or what the Fed will call capping rates. While it's clear we're not going to see that change today, most of us now think that it's in the offing later this year or early next year. And this is because the Fed is going to have to subordinated itself to treasury policy. They're going to need to account for the large, persistent annual operating deficits that we're going to run for a very long time post-pandemic. And quite simply put, the front end of the curve is going to have to be at zero, and I'm thinking the 10-year is going to be stuck at around 0.5%.

JULIE HYMAN: Adam, you just need to unmute yourself.

ADAM SHAPIRO: Lord have mercy everyday. OK, Joe, I need to ask you, this discussion of yield curve control, what does that mean to you and me? Because if they're buying long-term treasuries and they're sticking the 10-year-- you know, they're trying to control the 10-year-- if I'm going for a mortgage or if Jay Powell is going to keep insisting that their policies don't contribute to income inequality, isn't he wrong?

JOE BRUSUELAS: Well, I don't necessarily think that the Fed's what's causing the income inequality. That's got to do with inequities across society, including social justice and a tax code that favors the rich, OK? Once we get past that, what you're going to want to find out here is that if you're a you're a median consumer and you see the Fed engage in yield curve control, well, you're probably going to want to think about going out and take advantage of those low rates, whether it's replacing your car, which is likely 10 to 12 years old, if you believe the data, and then going out and perhaps either refurbishing your existing home or maybe trading up and buying a new home.

This is going to be a once-in-a-lifetime opportunity over the next few years where interest rates are just going to be extraordinarily low. And there's no reason why the American public shouldn't A, profit off of this, and B, expect the federal government to go out and begin building the infrastructure in the country over the next few years.

RICK NEWMAN: Hey, Joe, Rick Newman. You're well attuned to the political economy. What do you think the economy is going to feel like on election day in November? And when I say feel like, I mean do you think voters are going to feel like things are getting back to normal, or do you think a lot of people are going to still feel distressed?

JOE BRUSUELAS: No, the economy is going to remain impaired well past election day. I think the one statistic that everyone's going to look at is where is the unemployment rate going to be. It's going to be well above 10%, probably in the 11%, 12% range come election day. There's going to be significant loss in income. We can already see that in the data. The census department did a great impulse survey this week that showed over 20% of households that make $200,000 a year have seen a loss in income. Down the income ladder, it's near 50%.

We're not going to turn that around six months. But don't kid yourself, the administration is very good at PR and communications. They'll have some very effective commercials. But at least for some portion of the public, they'll convince them that things are getting better. But overall, no, it's going to be till mid-decade till we're anywhere back to where we were around January 2020.