Global economy ‘not necessarily’ on track for a recession, strategist says

Head of US Macro at BNY Mellon Investment Management Sonia Meskin joins Yahoo Finance Live to discuss key takeaways from Wednesday’s FOMC meeting, Fed Chair Powell’s take on financial conditions, disinflation, and what the 25-basis point rate hike means for the economy.

Video transcript

BRAD SMITH: So the Fed raised rates once again and by the expected 25 basis points. Chair Jay Powell reiterating the plan of ongoing increases, but stocks seem to be largely shrugging that off with Powell's comments on disinflation lifting demand for risk assets. Here to discuss, we've got Sonia Meskin, who is the head of US macro at BNY Mellon Investment Management. Sonia, thank you so much for taking the time here this morning. Your perspective on what Powell had to say and, quite frankly, what the markets are giving weight to as well here today.

SONIA MESKIN: Sure. Thanks so much for having me. So I would say the big takeaway from this meeting was really the press conference. And within the press conference, it was the fact that Powell basically did not validate slash some would dismiss the SEP from December on EBITDAs. Secondarily, he didn't push back against the recent easing in financial conditions.

But I think the most important part was that he essentially said we're not really committed to the dots in December. And the December dots were a big hawkish move for the Fed, where they really, if you recall, they really took their estimate of the target rate for the cycle to 5%, if not higher. And the fact that he kind of dialed that back, essentially dialed that back, was really what I think is behind this market rally.

JULIE HYMAN: And Sonia, does that now mean soft landing, free and clear? That's the base case at this point?

SONIA MESKIN: Well, I think it really doesn't really-- it's the one episode in the saga. It's not necessarily the end of the saga. I would say that certainly he talked a lot about everything that the market already knows, which is that goods inflation is coming down. We're really having goods disinflation, which is the mirror image of what we were having when COVID first hit. It's certainly being helped by China reopening. We are having or will be having some disinflation in new leases and shelter in general, at least in the first half of 2023.

What's happening with services inflation overall is still a big question. Now it's all about really about the labor market. And the question for us is really, well, do they need to have the labor market weaken substantially, i.e., have a recession in order to contain services inflation and kind of really nip in the bud that potential for a wage price spiral that is still out there, or is this just going to happen on its own?

BRIAN SOZZI: Sonia, despite the Fed sounding a little more dovish yesterday, they still raised rates. The ECB, they raised rates today. So did the B of E. Do you think all these rate increases by global central banks still has the global economy on path for recession?

SONIA MESKIN: I would say not necessarily. We really had-- and each of these economies is somewhat different. We had a big shock to supply and demand coming from COVID that is still being kind of worked through. I think that in the US specifically, supply and demand is still not in equilibrium. Powell did allude to that multiple times yesterday. And the imbalance is still quite evident in the labor market specifically.

Where that new equilibrium will be, will it be at roughly the same place where it was pre-COVID or somewhere different is really quite crucial to policymakers and to the economy overall. But they don't really know where that will be, and they're erring on the side of caution, e.g., on the side of being dovish right now.

BRAD SMITH: Sonia, we've got to leave things there for today, but we certainly do appreciate the time, Sonia Meskin, who is the head of US macro over at BNY Mellon Investment Management. Sonia, thank you again.

SONIA MESKIN: Thanks for having me.