Jim Bianco, founder of Bianco Research, warned that aggressive interest rate hikes by the Federal Reserve to fight inflation would cost all financial assets.
CNBC reported that Bianco turned bearish on the stock market by the end of 2021, citing inflation risk as the main reason. In an interview on the 7th, he blamed the Fed for waiting too long to end the ultra-loose monetary policy driven by the epidemic.
Bianco said last year central bankers decided that inflation was only temporary and would be well contained, arguably one of the worst forecasts in Fed history. The Fed, which began slowly raising interest rates a year ago, is now stuck in ultra-aggressive monetary policy.
Bianco worries about the cost the Fed will have to pay to catch up with inflation. He said the Fed does not want to cause a hard landing for the economy, but wants to keep prices down to keep inflation down and is ready to keep raising interest rates until inflation cools. The way to get there is to try to slow demand.
Bianco believes that the only solution for the Fed is to quickly raise interest rates to force the wealthy to stop spending.
The bond market has begun to react to the Fed’s bold move. Bianco recently tweeted that the bond market is facing an epic carnage, and that total bond returns are not only the ugliest performance we’ve had since we started, but perhaps the worst of our lives.
Bianco believes that while the Fed does not want to destroy the market or cause a recession, if they are determined to control inflation, they are very likely to make mistakes.
Another indicator flashes recession warning signs
Barron’s and Business Insider reported on the 6th that the Dow Jones Transportation Average pulled back more than 20% from its previous high (18,246.512 points) in November 2021 on April 6, falling into a bear market.
The Dow Jones Transportation Average tracks about 20 airline, rail and trucking stocks, which some investors see as a measure of the health of the economy, arguing that if planes, trains and trucks are all very active, the economy must be doing well.
The Dow Jones Transportation Average has been in bear markets in 2020, 2018, 2016, and one of those years the economy did fall into recession. The phenomenon of 2018 is also related to the Fed, when the “taper tantrum” occurred, and investors began to worry that the Fed would slow down the pace of bond purchases.