Inflation and the Federal Reserve spark a one-way trip into market misery: Jim Bianco

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

“The Fed has only one tool to bring in inflation, and that is it has to slow demand,” the head of Bianco Research told CNBC.fast money“Tuesday.” We may not like what’s going on, but in the Eccles Building in Washington, I don’t think they’re too bothered by what they’ve seen in the stock market over the past few weeks. “

The Standard & Poor’s 500 decreased for the fifth day in a row and Deeper into a bear market on Tuesday. The index is now down 23% from its all-time high on Jan. 4 Nasdaq is from 33% and daw 18% of the record highs each.

“We are in bad news is a good news scenario because you got it 390,000 jobs in May,Bianco said [the Fed] I feel like they can make the stock market miserable without creating unemployment.”

Meanwhile, the standard Treasury bond yield for 10 years It reached its highest level since April 2011. It is now at around 3.48%, up 17% over the past week alone.

Bianco was preparing for return of inflation for two years. On CNBC’s “Trading Nation” in December 2020He warned that inflation would rise to levels not seen in a generation.

“You have quantitative tightening coming. The biggest buyer of bonds is leaving. And that’s the Federal Reserve,” Bianco said. “It made them intend to be very hawkish in raising interest rates.”

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

“You can raise interest rates enough, it can kill the economy, demand can come off a cliff and it can happen inflation get down. Now, Bianco said, this is not the way you want it or I want it to be. “There is a high degree of possibility that they will end up going too far and making a bigger mess of this.”

He argues that the Fed needs to see massive damage to the economy to undo the tightening policy. He warns that inflation affects every corner of the economy Practically all financial assets are subject to severe losses. According to Bianco, the odds are against a soft or even a smooth landing.

Its exceptions are commodities, which are in a position to beat inflation. However, Bianco warns that there are serious risks there as well.

“You are not there in a state of demand destruction yet. And so, I think until that is done, commodities will continue to rise,” he said. “But the caveat I would give people about commodities is that they have levels of volatility in cryptocurrencies.”

For those with low risk takers, Bianco believes government-insured money market accounts should start to look more attractive. Based on a 75 basis point increase, he sees it jumping 1.5% in two weeks. The current national average is 0.08% in a money market account, according to Bankrate.com’s latest weekly survey of businesses.

It’s hard to keep up with inflation. But Bianco sees few alternatives for investors.

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

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