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RBS Securities Chief Economist Michelle Girard on the potential impact on Federal Reserve policy and the markets of improving job growth.
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What you see on the slower but all that -- because of the February jobs report coming in better than expected today but is it really time to celebrate and will this report pressure the Fed to act sooner rather than later what with that due to the markets.
Well a lot of -- -- ticket prices go down as a result without Michelle Girard she's chief economist for RBS securities and we show Larry we've talked about this before is fine line.
Between good job reports and so good.
That maybe the Fed could pull back -- it's easy money burning up policy and that might spook the markets what do you think.
Right well certainly if this was the trend and we will -- -- looked out six months.
And we saw these kinds of numbers holding.
Then I think we'd be talking about something about the Fed beginning.
To figure it's time to start scaling back especially at their pace of purchases I don't think this at all has -- implications in terms of actually.
But if you excuse me for interrupting -- job but they do and let's cut to the chase would that be bad for the markets with a mark I take that -- a sell.
I think that that would unsettle the markets now I mean definitely the equity market is benefiting.
From now the Fed's inflows in terms of their buying.
They're injecting all this money into the system that's.
Finally getting you know to -- equity markets -- benefited the bottom markets in -- you're really seeing it take hold in the equity market but there's also a fundamental case.
For the equity market in terms of you know the strength to the corporate sector but I will say you conceded -- reaction went well we -- fed official come -- suggest that maybe the Fed is gonna slow down.
On the pace of these purchases that -- all this money into the system.
The equity market sells off alongside the bond market so there is definitely some feeling that if -- lost that support from the -- somebody being that the very pleased that we see an equity market might -- Sustained so this brings up the question when they are getting closer.
To deciding you know what it's going to be time clearly Michelle they're going to be so careful what treading on -- as to whether.
-- how they will telegraphed this to the market best guess what it's time people.
So for months and months in advance would you expect the senate in what form first scaling back QE but then why when they finally pull the trigger.
How will we all react.
It's going to be a very transparent.
Process they're like you said they are going to move.
Particularly in terms of beginning the cycle change about stopping or slowing purchases I mean even that will happen.
In stages they will gradually reduced the amount of -- each month so that by the -- Hopefully it's a very smooth transition in terms of the market doesn't sort of notice as much the you know the stopping -- the purchases.
We're not talking about rate hikes though.
Until probably 2015.
The Fed has laid out -- thresholds so every -- we know how.
Maybe closer by the -- the Fed is committed to not raising the funds rate -- -- -- interest rates until we get below six and a half percent and a plan.
-- that deleveraging is so delicate process be shelved can be when you consider how huge -- port folio the Fed is right now I I can't remember the most recent figures ms.
close at three trillion.
Some people likened it to to try to pull the pin out of the balloon without making a pot.
I think that I have to say I do think I can't should be.
An alarm as I do though think that the Fed sort of has its work cut out -- you know we have enjoyed.
Extended period of more monetary accommodation that I think any of us could have envisioned.
And -- space that when it's time to go the other way there is going to be some pain particularly when you think about.
You know we've seen all of the support for the financial markets.
You know what happens when a when that goes away we've seen rates being held below the levels we would normally be -- -- given economic conditions that passed in how to -- itself -- the Fed is gonna -- only -- To keep the markets you know from suddenly and violently -- -- -- very watch shall they keep telling us about.
Current situation of financial instability by keeping rates so low for so long but you know I I think I'm gonna be walking a very finalized and I have to say I am.
I think less optimistic than the Fed chairmen that they are that they have the tools and they are going to be able to facilitate this.
Reversal as smoothly as they think they're going to you know I don't think so I'd need to Michelle at eight at eight -- hate to say at the end of the day got to stop ourselves are saying about but Michelle.
When you're at.
A cocktail party people say -- she's she's see the smarty pants -- the economists is this market -- can T continue to keep going higher what's your gut reaction of -- I do think in it certainly in the near term -- I mean looking out over the next year we are not going to be looking at the Fed making any.
Quick reversals this that is made it clear they're going to overstayed their welcome my -- -- they're not gonna take the chance of pulling out support too soon and as I said their fundamental case in terms of the strength in an economy very strong corporate balance I mean there is -- reason also fundamentally why.
Equities are doing better so I also think that something very important to keep in mind when we're so worried about how much of a role the Fed has played in terms of equity story.
Anyway Michelle as you said that the sun just came now that said.
-- -- a lot of investors -- be happy to hear you say that basic Michelle have a good weekend indices Michelle Girard of RBS.
