Transcripts

"The Economy and the Markets at Mid-Year"-Josh Feinman & James Awad on Inflation

SUSIE GHARIB: So looking ahead, is inflation really a cause for concern? Picking up again with Jim Award and Josh Feinman, I asked Josh if inflation is the next risk for the economy.

FEINMAN: I don't think so. I think that the economy is going to be operating with a lot of spare capacity, a lot of slack so to speak, that will help put a lid on (INAUDIBLE) price pressures for the next couple of years probably. It's going to take a long period of strong growth to absorb all that slack and I don't see us getting that any time soon. So I think if anything inflation is more likely to drift a bit lower over the next one to two years than to move much higher.

GHARIB: But Jim, the message of the market seems to be different than that. It seems to be telegraphing that the Federal Reserve needs to raise interest rates or take some of the stimulus out of the economy and we have seen that the Fed has been slow to make changes in the past. Will it get it right this time?

AWAD: Well, it's going to be very difficult. They have a very narrow path to walk between doing it too early and doing it too late. But what's encouraging to see is you know they're talking about it now, when you read what actually went on in the meeting. There were people who think that we should wait longer and there are people who think that they should start now. So at least they're on the case, if you will. And if they're on the case, they have a better than even chance of being successful.

GHARIB: Josh, what is your forecast for economic growth for the rest of this year? Is the any going to go positive?

FEINMAN: I think it will. I think we're in the process of stabilizing. The free fall is over. We're stabilizing. I think we will return to some growth later this year and into 2010, but I think it's going to be fairly sluggish in the early going. The economy still has a lot of head winds from the housing and credit crises to work its way through, so it will be a while before we get back to any kind of a really strong growth.

GHARIB: And Jim, how is this all going to play out in the markets? We had a stock market rally the early part of the year. It's now pulled back. What's next?

AWAD: Well, it's going to be very frustrating for investors because I think economic growth will be stable enough. The economy will be stable enough that the bears won't be right. On the other hand, there's a lot of reasons to believe that the recovery will be very tepid which I think will be frustrating to the bulls. So I think it's going to be a market where what you own, what asset classes you own are going to be more important than the general direction of the market. The bear market is over, but you can't say the next bull market has begun.

GHARIB: All right. We'll be back in a few moments with more of your thoughts.