Fed soft landing ‘somewhat of a myth,’ strategist says

Claro Advisors' Ryan Belanger joins Yahoo Finance Live to discuss Fed Chair Powell's comments on inflation, the path for monetary policy, and how to position portfolios amid macroeconomic headwinds.

Video transcript

BRIAN CHEUNG: Well, let's talk a little bit more about beeps or bips or what have you with Ryan Belanger, Claro Advisors managing principal and founder. Great to have you on the program, Ryan. We were talking about just kind of the commentary from Fed Chairman Jay Powell, which, by the way, is still underway in the Senate Banking Committee right now. Just kind of curious if there was anything new that you've gleaned from the Fed speak that we've gotten in the wake of last week's surprise, 75 bips, beeps, move.

RYAN BELANGER: Yeah, thanks for having me. I'm also a bips man, but. Yeah, I mean, I think from our point of view, the Fed is behind. They've been behind for a while. And they've got a lot of catching up to do. I give them a lot of credit for raising by 75 basis points at their last meeting. I think they'll have to do that a few more times. Historically, the Fed will have to raise interest rates to a level above the current inflation rate to tame down inflation. And so I think they've got their work cut out for them.

BRIAN CHEUNG: Yeah, so Ryan, I guess on that point, right, I mean, we've gotten, on one hand, a little bit more policy certainty because the Fed chairman said pretty clearly last week, look, the next meeting in July is between 50 or 75. And our conversation with the Philadelphia Fed president this morning seemed to solidify that. I want to play that clip of what he said to us on Yahoo Finance just a few minutes ago. Take a listen.

PATRICK HARKER: If we start to see demand soften-- and we are seeing some signs that demand is starting to soften in certain sectors of the economy-- and if it's softening quicker than I anticipate, then it may be appropriate to go with the 50. If it's not, then it's probably appropriate to go with the 75. Let's see how the data turns out in the next few weeks.

BRIAN CHEUNG: I mean, Ryan, the takeaway seems to be that it's flexibility. So in this type of environment, how do you think about just kind of where Fed policy could go? Because that seems to be a very important storyline that could mix up a lot of investors.

RYAN BELANGER: Yeah, Brian, you're exactly right. I mean, investors are just watching the Fed's every word at this point. So I can't remember a market that's been trading like this. The Fed seems to have total control over where prices are going. But the soft landing speak is, I think, somewhat of a myth. If you look at historically, in the 12 really tightening cycles that the Fed has had to go through, only three of those times, you actually had some sort of a soft landing. And in all three of those cases, there was very good reasons why a recession didn't happen.

So that's why I'm personally of the belief that we will get a recession. I mean, who's to say we're not even already in a recession? You know, it's hard to know that one way or the other. But I think investors really need to control what they can control within their asset allocation.

BRIAN CHEUNG: So tell us about the strategy for asset allocation right now because there's kind of nowhere to hide right now. That's what Meera Pandit over at JPMorgan told us yesterday. You can't go into fixed income. It's been a bloodbath there. There's been bloodbath in equities, the bloodbath in crypto. Where do you go right now?

RYAN BELANGER: Well, you know, I'm not sure you do much of anything. We often don't try to mistake action for achievement here. And you set out as an investor your long-term goals, and you've got a risk tolerance and then an investment horizon. And sometimes doing nothing is better than doing something.

But if you're insistent on doing something, you try to be smart about the things that you can control. So maybe you're taking tax losses in your portfolio, or you're doing Roth conversions, or you're doing these types of strategies that can have some real impact because we can't control the markets.

One kind of interesting stat that I've seen recently was that the international markets do seem to pose quite a bit of value. Typically, there's about a four-year period where US stocks will outperform. Then international stocks will outperform. It's been 14 years, Brian, that the US stock markets outperformed the international markets. And so, from my vantage point, international equities are already trading at recession-like levels. And so if I'm an investor, I'm not giving up on that in my portfolio.

BRIAN CHEUNG: All right, interesting commentary there. Ryan Belanger, Claro Advisors managing principal and founder. Thanks so much for stopping by the program this morning. Really appreciate it. Coming up--