Kingsview Partners CIO Scott Martin discusses the ten year Treasury rate, a tightening Fed and the reopening of the economy.
Program: Cavuto Coast to Coast
Station: Fox Business News
NEIL CAVUTO: We are focusing on what you’ve been focusing on for the last few hours, and that is what the Federal Reserve will do and announce in about 2 hours. We’re expecting a half point hike in the overnight lending rate known as federal funds, and a lot more rate hikes to come. By the way, a half point hike would be the largest we’ve seen since 2000. Again, we’ve gotten used to quarter point moves up or down, but nothing like what we could be prepared to see. And of course, that telegraphing of still more hikes to come, some say at least another seven hikes through the remainder of the year that could send that overnight bank lending rate prohibitively higher to three, four, maybe even 5%. Let’s get the read from Scott Martin right now as investors brace for all of this. First off, Scott, what are you looking for?
SCOTT MARTIN: 50 basis points today, neil, and a projection of another 50 in june, which is so interesting because that’s what the market has kind of been telling the fed to do. And we’re here and they’re likely going to do it maybe with some more hawkish meaning a little bit more kind of tapering commentary with respect to the balance sheet and the market should take that. Okay. But it’s one of those issues where it’s been volatile this year. If you look at the benchmark ten year Treasury rate, Neil, which is really the benchmark rate to a lot of rates that we all feel with regards to mortgages and lending and things like that. I mean, it’s doubled practically this year. If you go back to the end of December, worried about 1.5% on the ten year Treasury, now close to three. So that’s a shock. And I love the term you used the verb as as I’ve used with my kids before. It may not be what you’re used to, but it is the reality. And so we have to get into this new reality of a tightening fed, of a less accommodative Fed, a less accommodative Treasury Department with respect to stimulus checks and all those things and the reopening of the economy to happen, which I think is ultimately good for the market. And why levels at these prices, these price levels here that we see in the markets today are constructive for long term investors going forward.
CAVUTO: You know, just to get back, if you think about it, Scott, to historical norms, these short term interest rates would had been around zero for most of the last decade. We’ll hit around 1% today, likely by the end of the year, maybe be upwards of 4%, maybe more than that if you anticipate seven more rate hikes, if they were to do this every every six weeks at an FOMC meeting, a Federal Open Market Committee meeting, there’s no guarantee that all of those will be tepid hikes and or that we could still see ind-ra meeting hikes. Where do you see the Fed funds rate by year end?
MARTIN: I actually see it pretty low, neil, considering some of the projections out there, i think these next two rate hikes are definitely in the bucket. But I think going forward from there, you’ve got a slowing economy, somewhat uncertain job market with respect to jobs that are actually being taken versus jobs that are available. And frankly, tough comps on CPI and PCE, which are big key inflation measures going forward come the fall, meaning year over year, comparisons in those data points are going to be tough to remain hot. So I think inflation is going to start to slow and maybe tip over a bit. So the Fed may not feel as much pressure. But to your point, I mean, one of my favorite lines in a Grateful Dead song is the first days are the hardest days. Those are going to be tough for the market to digest, as you just mentioned, with Fed funds at zero for what seems like forever and inflation nowhere. I mean, we had a deflationary environment for the last 12 years coming out of the financial crisis. We couldn’t find we couldn’t create inflation anywhere, even though we tried. And so now it feels very difficult and challenging, but the market will get used to it. The market will get accustom to a more hawkish Fed and be able to go up again.
CAVUTO: All right. Now, you were referring earlier there to a popular retail inflation number and, of course, personal consumption index number, how much people are willing to spend. And both have been on an upward trajectory here. But there is a fear here that when all is said and done, we close out the year, despite what you’re saying, closer to a four or 5% overnight bank lending rate, which would be closer to what is the mean or the norm. But you seem to be arguing that the Fed will sort of pull that back a little bit, that it’s overdone. It you might be very right. And there are others who share that view. But if it’s interpreted as the Fed losing sort of its nerve to to address this, wouldn’t the markets revolt at that?
MARTIN: They would, and they have to some degree. I mean, the Fed took a while to get the first rate hike in. Right. And the market kept pushing it that way. And eventually we felt some pain and the Fed did it. So I think, Neil, though, we have to look at kind of the mantra in the behavior of this Fed over the last several years and throw out some of the recent talk, because I think they had to give the market some of that hawkish higher interest rate talk. But this is a Fed that at least last time I checked, I mean, looking over their their body of work, as it were, they don’t want to crash the markets. They don’t want to crash the economy. They don’t want to over tighten. And we have a midterm election coming up that is fraught with all kind of geopolitical issues as it is now, even in the recent days, as we’ve seen with Roe v Wade, I don’t think this is a Fed that wants to get involved in having, say, this hanging on their hats with respect to crushing the economy going into November.
CAVUTO: Either I remember a guy named Paul Volcker who didn’t worry about stuff like that. He just did what he had to do. Do I sound like.
MARTIN: He’s a real.
CAVUTO: Man? Yeah, I do. I’m the angry old man. Scott, hang in there, my friend. I do want to get your thoughts on China a little bit later in the show because some interesting developments there to follow that aren’t quite what you think.