Jeanette Garretty, Robertson Stephens Wealth Management Chief Economist, joins Yahoo Finance Live to discuss decisions from FOMC and economic outlook.

Video Transcript

ALEXIS CHRISTOFOROUS: All right, let's bring in Jeanette Garretty now. She is chief economist at Robertson Stephens Wealth Management. Jeanette, let's talk about that punch bowl for a moment. The last time that the Fed signaled they were going to pull back asset purchases was back in 2013. And that sparked a sell-off in the bond market known as the taper tantrum. Do you think that, if and when, because eventually they're going to have to signal that they're pulling back this stimulus, we're going to see something similar happen this time around?

JEANETTE GARRETTY: I-- the whole-- the punch bowl is the whole thing that Jay Powell is concerned about right now. A lot of people speaking before me have kind of delineated or contributed to understanding this. But yeah, the memories of the taper tantrum loom very large on the minds of the Fed. And this is, as much as anything else, a communication challenge that he is confronting. And it's going to be very interesting to see what he does from the podium in a few minutes.

The economy is changing very rapidly, even in front of the Fed's eyes. So the earlier remark about have investors really caught up to what is going on in the economy and that they may not have, I agree. But there's been a huge amount of change from the standpoint of the Fed, for example, between the last FOMC meeting in March, and now the change in tone in the published statement is really significant in emphasizing the positives of the economy not last month where they're saying--

ADAM SHAPIRO: But Jeanette--

JEANETTE GARRETTY: --well, you know, [INAUDIBLE]. Yes.

ADAM SHAPIRO: If you were in the room where it happened, as they like to say these days, how would you phrase the question to Jay Powell about transitory inflation and full employment? Because both of those are going to have to be in balance before the tamper-- or the-- yeah, the tampering begins. I was about to say the tantrum.

JEANETTE GARRETTY: Yeah, it's more understanding, you know, what are they thinking about. And what has been said earlier and I think it's still true that, you know, they're thinking about pre-pandemic, the unemployment rate was 3 and 1/2%. Wages did not start to rise significantly until the year leading up to that, until the unemployment rate got to something like 4 and 1/2%, 4.2%. They want to see wages rising in a manageable way.

But they want to see that improvement in economic prospects for those parts of the economy that tend to be the last to participate. So they see that as being wages. And they remember that 3 and 1/2% unemployment rate was not associated with particularly high levels of inflation. That's the most recent history. I think they're hoping the same thing will play out again. But I kind of agree with Mark Zandi. I think they're going to have to be very, very careful here.

SIBILE MARCELLUS: Jeanette, how much is the global outlook weighing on the Fed, especially when we're seeing this record number of cases in India and also this COVID variant in South America?

JEANETTE GARRETTY: It's a great question. And it isn't brought up often enough. I think that Jay Powell, in particular, is keeping an eye on the rest of the world, which is behind us, in many cases, particularly the developed world. So right now, the great growth story is US and China. Europe is showing signs of some economic improvement. But it's way-- it's, like, looking out to the fall. He wants to let this growth in the United States [INAUDIBLE] because that helps other parts of the world.

And, in turn, other parts [INAUDIBLE] growing will help the sustainability of the US economic expansion. So, yeah, it comes into play. He's in no mood to move on interest rates or bond acquisitions any time real soon. But he does need to start communicating that things are looking better. And that might change the time frame that has been put out there.

ALEXIS CHRISTOFOROUS: All right, Jeanette Garretty, chief economist at Robertson Stephens Wealth Management, thanks for joining us today.