Wild Inflation Inflicts Damage On All Financial Assets, Market Researcher Jim Bianco Says

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Jim Bianco
Jim Bianco

There is probably no exit plan from the bearish bond market, not even for stock investors. 

According to market research expert Jim Bianco, severe Federal Reserve policies to curb the wild inflation will result in huge losses to Wall Street. 

“Eventually, this is going to come back and hurt all financial assets,” the Bianco Research president told CNBC “Fast Money” on Thursday.

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Bianco’s sentiment on stocks became bearish late last year, following inflation risks. The market researcher puts blame on the Fed for delaying the pandemic’s easy money policies, and hiking interest rates. 

“The call last year that inflation would be well-contained and transitory is arguably one of the worst forecasts in Federal Reserve history,” said Bianco. “They are now stuck with this ultra-aggressive policy because they didn’t start raising rates at a very leisurely pace a year ago.”

He worries about the big catch-up costs.

“They don’t intend on creating a hard landing. But what they do intend on doing is reining in prices,” Bianco said. “They want lower inflation, and they’re going to raise rates till they get lower inflation. How are they going to do that? They’re going to slow demand down.”

Bianco said the Fed’s only solution available is to hike interest rates quickly and stop the wealthy from spending. 

“The bond market gets it. The carnage is epic,” he wrote in a recent Twitter thread. “This is not only the worst bond market in our career (total return) but might be the worst of our lifetime.”

He sees a 75% chance of inflation within the next two years, and e expects a 50 basis point hike at its next policy meeting on May 3 through May 4.

“It will be 50 [basis points] all the way through until the Fed basically raises rates too much and breaks something. And, then they’ll be done. But, they’re not going to go back to 25,” he said. “If the stock market wants to go up, maybe they should be talking about 75 instead of 50.”

Bianco contends the Fed is aware the stakes are high.

“They don’t want to create the mistake in the other direction by being too timid right now. 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. But when you go down that path and you’re that adamant about trying to rein in inflation, it makes it very likely that you will create a mistake.”