There may be no escape from bond market turmoil, even for stock investors.
Market researcher Jim Bianco warns that the Federal Reserve’s critical policies to rein in wild inflation will inflict widespread losses on Wall Street.
“Eventually this will come back and hurt all financial assets,” the president of Bianco Research told CNBC.Easy money” Thursday.
White turned bearish on stocks late last yearr, mainly due to inflation risks. He blames the Federal Reserve for waiting too long to end its pandemic easy money policies and raise interest rates.
“Last year’s announcement that inflation would be well contained and transitory is possibly one of the worst forecasts in the history of the Federal Reserve,” Bianco said. “Now they’re stuck in this ultra-aggressive policy because they didn’t start raising rates at a very leisurely pace a year ago.”
You are worried about the costs of the big recovery.
“They don’t intend to create a hard landing. But what they do intend to do is control prices,” Bianco said. “They want lower inflation, and they’re going to raise rates until inflation comes down. How are they going to do that? They’re going to slow down demand.”
According to Bianco, the Fed’s only solution is to rapidly raise interest rates and make rich people stop spending. The bond market is already pricing in the likely bold moves by the central bank.
“The bond market gets it. The carnage is epic.he wrote in a recent Twitter thread. “Not only is this the worst bond market of our career (total return), it could be the worst of our lifetime.”
Bianco, who sees a 75% chance of inflation in the next two years, expects a 50 basis point hike at his next policy meeting on May 3-4.
“It will be 50 [basis points] all the way until the Fed basically raises rates too high and breaks something. And then they will be done. But they’re not going to go back to 25,” he said. “If the stock market wants to go higher, maybe they should talk about 75 instead of 50.”
Bianco maintains that the Fed is aware that the stakes are high.
“They don’t want to create the error in the other direction by being too timid at the moment. That’s out the window now,” Bianco said. “They don’t want to create a broken market. They don’t want to create a recession. create a bug”.