Inflation and the Fed trigger a one-way trip to market misery: Jim Bianco


Until inflation peaks and the Federal Reserve stops raising rates, market forecaster Jim Bianco warns that Wall Street is on a one-way ticket to misery.

“The Fed has only one tool to drive up inflation and that is to slow down demand,” the president of Bianco Research told CNBC’s “Fast Money” on Tuesday. “We may not like what’s going on, but at the Eccles Building in Washington, I don’t think they’re too upset with what they’ve seen on the stock exchange for the past few weeks.”

The S&P 500 fell for the fifth straight day and sank deeper into a bear market on Tuesday. The index is now down 23% from its all-time high on Jan. 4. The Nasdaq is down 33% and the Dow Jones 18% from their respective highs.

“We’re in a bad news and good news scenario because you have 390,000 jobs in May,” Bianco said. “They [the Fed] the impression that they can make the stock market miserable without creating unemployment.”

Meanwhile, the benchmark 10-year Treasury yield hit its highest level since April 2011. It is now around 3.48%, up 17% from last week.

“Complete mess right now”

“The bond market, and I’ll use a very technical term, it’s a complete mess right now,” he said. “The losses you’ve seen in the bond market year to date are the largest on record. This is shaping up to be the worst year in bond market history. The mortgage-backed market is not no better. Liquidity is terrible.”

Bianco has been preparing for a return to inflation for two years. On CNBC’s “Trading Nation” in December 2020, he warned inflation would hit heights not seen in a generation.

“You’ve got quantitative tightening coming. The biggest bond buyer is going. And that’s the Federal Reserve,” Bianco said. “You intend them to be very hawkish in raising rates.”

Bianco expects the Fed to hike rates 75 basis points on Wednesday, matching Wall Street estimates. He also expects another 75 basis point hike at the next meeting in July.

“You could raise rates enough and you could butcher the economy and you could knock demand off a cliff and you could drive inflation down. Now that’s not the way you or I want it to be. happen,” Bianco said. “There’s a good chance they’ll end up going too far and making a bigger mess.”

He argues that the Fed must see serious damage to the economy to undo its tightening policy. With inflation affecting every corner of the economy, he warns that virtually all financial assets are vulnerable to large losses. According to Bianco, the odds are against a soft or even soft landing.

Its exception is commodities, which are positioned to beat inflation. However, Bianco warns that there are also serious risks.

“You’re not there yet in demand destruction. And so, I think until you do, commodities will continue to rise,” he said. “But the caveat I would give people about commodities is that they have levels of crypto volatility.”

For those with a low tolerance for risk, Bianco thinks government-insured money market accounts should start to look more attractive. Based on an increase of 75 basis points, he sees them jumping 1.5% in two weeks. The current national average rate is 0.08% on a money market account, according to’s latest weekly survey of institutions.

It would be difficult to keep up with inflation. But Bianco sees few alternatives for investors.

“Everything is one-sided in the wrong direction right now,” Bianco said.



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