Fed dot plot signals first rate increase in 2022 instead of 2023

Joseph Minarik, The Conference Board Chief Policy Economist & Former OMB Chief Economist under Clinton, joins Yahoo Finance to discuss Fed tapering and the labor market.

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- Want to continue this conversation now with Joseph Minarik, the Conference Board's chief policy economist and former Office of Management and Budget chief economist under Clinton. Joseph, always good to see you. Just-- and your initial reaction to what you heard from the Fed today. Was this a more hawkish tone that some thought we might be hearing from the Fed this time around?

JOSEPH MINARIK: Possibly shading in that direction, but I'm not-- not bowled over by it. I think that what they are saying is that they are seeing positive developments in terms of the recovery of the economy. They believe that there are still some headwinds to be concerned about. They'll-- Chair Powell will certainly mention that we are dependent upon progress against the pandemic, that that will be important, that there are contingencies out there to be concerned about.

At the same time, we see a little bit of erosion on some of those inflationary pressures. The Fed will continue to believe that they are basically transitory and dependent upon some of the phenomena following on the pandemic, and that they will go away. So a little tilt, which I think they would probably describe as simply recognizing the positive developments in the background.

- When they talk about moderation may soon be warranted, so what's the next step at the November meeting, assuming there are no hiccups between now and then?

JOSEPH MINARIK: That's the $64 trillion question. Whether it's time to begin to slow down or to begin to taper the asset purchases or not I think will be dependent upon what we see between now and then in the data, and also in some of the background developments, which go all the way from [? Evergrande ?] to the US debt limit. We could mess this up ourselves. We could have developments in the global economy that would throw us off our stride. The pandemic-- the war on the pandemic could go better or worse. And they didn't take action this time, and everybody is holding his powder until we get to the point where we see the developments that are necessary to make a decision. So nobody's going to say what they're doing in November as of now.

- But we can look at tea leaves from the past and data we're going to get in October. John Williams actually said I want to see more improvement in the labor market before I'm ready to declare the test of substantial further progress being met. So we're going to get the September numbers in October, and we have kids going back to school. The theory is that more adults will then go back to work. Will they then, as John Williams wants, have the necessary information from that data to then go forward with whether it be tapering or-- well, the dot plot, you know, interest rate increases not until '22, so it's really just tapering at this point.

JOSEPH MINARIK: Well, labor market data have been maddeningly uneven. You look from one week to the next on the claims, you look from one month to the next on the employment situation, and you see every one of the last few releases has been a surprise. So we need to-- you know, we need to see those data come in. Are families going to be able to-- are parents are going to be able to go back to work? Depends on child care, depends on the state of the pandemic, depends on their confidence in their children's status in school. So all to play for.

- All right, Joseph Minarik, Conference Board's chief policy economist, thanks so much for joining us today.