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

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

“The Fed has only one tool to bring in inflation, and that is to curb demand,” Bianco Research president told CNBC “Fast Money” on Tuesday. “We may not like what’s going on, but away from the Eccles building in Washington, I do not think they̵[ads1]7;re so upset about what they’ve seen on the stock market in recent weeks.”

The S&P 500 fell for the fifth day in a row and stumbled deeper into a bear market on Tuesday. The index has now been reduced by 23% from its record high hit on 4 January. Nasdaq is 33% lower and Dow 18% from its respective record highs.

“We’re in the bad news is good news because you have 390,000 jobs in May,” Bianco said. “The [the Fed] feel that they can make the stock market sour without creating unemployment. “

Meanwhile, the benchmark yield on 10-year government bonds reached its highest level since April 2011. It is now around 3.48%, up 17% over the past week.

“Complete mess right now”

“The bond market, and I want to use a very technical term, it’s a complete mess right now,” he said. “The losses you have seen in the bond market so far this year are the biggest ever. This seems to be the worst year in the history of the bond market. The mortgage-backed market is no better. Liquidity is terrible.”

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

“You have quantitative easing on the way. The biggest buyer of bonds is leaving. And that’s the Federal Reserve,” Bianco said. “You’ve made them very hawkish when it comes to raising interest rates.”

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Bianco expects the Fed to raise interest rates by 75 basis points on Wednesday, which is in line with Wall Street estimates. He also predicts an increase of 75 basis points at the next meeting in July.

“You can raise interest rates enough and you can slaughter the economy and you can make demand fall from a cliff and you can make inflation go down. Well, that’s not how you or I want it to be done,” Bianco said. . “There’s a good chance they’ll end up going too far and making a bigger mess of it.”

He claims that the Fed must see serious damage to the economy in order to return to the austerity 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 a soft landing.

His exception is commodities, which are positioned to beat inflation. However, Bianco warns that there are serious risks there as well.

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

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

It would hardly keep pace with inflation. But Bianco sees few options for investors.

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


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