CNBC Power Lunch 230322 John Bellows

Tyler Mathisen: Let's whip around quickly and get each of your anticipations for this event. John Bellows, you go first.

John Bellowsl:So we think today is about financial stability. You know, we're still in the middle of significant concerns about stability in the US banking system. The Fed has a role to play as the primary regulator and we expect Jerome Powell will make a forceful case for the Fed acting aggressively and responsibly to stem the banking concerns. And so I think today's about bank financial stability. That's where we expect the headlines. And I think Powell will be forceful in the Fed's defense of financial stability.

Tyler Mathisen:And on interest rates, where do you think they come down? Quickly.

John Bellows: You know, I think they hike. I think they hike 25. But again, I don't think it matters. I think today is about financial stability. That's where he's going to make headlines. That's what's important.

Kelly Evans: This idea that the Fed has to do what the market is has priced in or that they like to kind of leave people with a sense of where they're going and then fulfill that. And as a result, everything's hunky dory. You know, they did that for basically every meeting of the past 12 months, and yet the rate hikes still broke stuff. So I don't think we need to be myopic here. And looking at the reaction this half hour to a macro effect that's still going to play out for the next year, year and a half, for quite some time.

John Bellows: You know, Kelly, I think that's exactly right. There's a lot of uncertainty about the outlook right now. You know, what is the impact of all the rate hikes that have happened. You know, that's broadly the story that's going on in the banking system as they're being impacted by those higher rates for sure. That won't be the last thing that's impacted. And the Fed, I think, is rightly kind of citing the uncertainty about how exactly that plays out. So I think you're on the right point regarding the uncertainty. You know, I certainly heard in the statement the Fed doing more to acknowledge that uncertainty than they have in the past. There may be more firming. And, you know, it's uncertain what the effects are. And I think that's realistic. So I think the Fed, you know, is realistic in citing the uncertainty there. You know, I just want to come back to this idea of financial stability. I think that line that Steve just read about the banking system is safe. I think that's a new addition to the statement. I could be corrected there. And I think that's a theme we're going to hear a lot more about. I think the market over the last few weeks has been trading primarily on this financial stability question. You know, it's not so much about the inflation outlook. It's about financial stability. And so, you know, I think that's a new addition to the statement. I think that's what we're going to hear about in the press conference. That's what matters for the market right now. They need to restore confidence in the financial system in order to pursue all these other objectives on inflation and unemployment. But the order of business today is really on financial stability.

Kelly Evans:The yield curve is back to 50 basis points. So that's this is the twos tens anyway. And would you describe that as kind of the sequence that usually plays out once we're already kind of heading into that macro slowdown event? Or do you think this is a a bullish signal either for stocks or for the economy?

John Bellows: Well, a quick point on this word, firming. You know, as Steve points out that one way policy can firm is unchanged policy rate and falling inflation. Another way policy can firm is if the policy rate remains unchanged relative to the market expectations for a cut. And so in that case, you know, the Fed would be delivering tighter policy than is discounted in the markets right now. And that could be considered a firming as well. You know, I think the broad point here is there's a lot of uncertainty about the outlook. I think the Fed's acknowledging that. And, you know, it's really hard to know exactly how that's going to play out over the next few meetings. I guess my final observation here is I think the yield curve is telling us that going forward, you know, a few meetings, even a few quarters, you know, there is a disinflationary process underway that's likely to be accelerated by the tighter financial conditions from the credit crunch. It's a matter of time before that is really apparent and kind of taking hold in the Fed acknowledges it. But I think that's what the yield curve is telling us, is that disinflationary process is underway. It's a matter of time and that's why yields are lower in the future, at least priced in markets.