US market researcher Jim Bianco warned that the Federal Reserve's decisive steps to curb runaway inflation would hurt Wall Street. In his opinion, all financial assets may suffer, writes CNBC.
At the end of 2021, Bianco turned bearish on the stock market citing inflation as the biggest risk. The fault of the Fed is, in his opinion, that it has waited too long to end its pandemic-era “ultra-easy money” policy and raise interest rates.
According to Bianco, the main risk is that it is not yet known how much such a catch-up will cost.
The researcher said the Fed's only solution is to quickly raise interest rates and get people to stop spending money. At the same time, the bond market expects little relief from that as demand destruction may quickly turn into depression which may force the Fed to cut interest rates.
“It will be a 50 basis point rate hike until the Fed raises it too much and breaks something. But the rate will not return to 25 points. If the Fed wants the stock market to go up, maybe it should talk about 75 basis points instead of 50 bp”, said Bianco.
At the same time, the Fed does not want to create a recession, but going down this path and persistently trying to contain inflation, it is very likely that it could make a mistake.