MacroVoices #417 Jim Bianco: FED Cuts, May, June or Bust?
Jim Bianco argues that inflation has bottomed at 3.1% and will remain sticky or rise, forcing the Fed to cut rates in May/June or not at all before the November election due to political timing constraints. He believes markets are complacent about rate cuts while economic data suggests a different trajectory.
Summary
In this MacroVoices interview, Jim Bianco challenges the prevailing market narrative that Fed rate cuts are inevitable in 2024. He argues that inflation hit its cycle low of 3.1% in June 2023 and will remain stuck around 3% or potentially drift higher due to three key factors: unfavorable base effects from low year-ago comparisons, rising gasoline prices from Red Sea shipping disruptions, and sticky housing costs that haven't fully reflected cumulative rent gains in CPI data. Bianco contends that the post-2020 economy fundamentally changed, with Americans now spending 96% of income versus 94% pre-pandemic, leading to persistently hotter economic growth compared to other developed nations experiencing recession or contraction. He believes the Fed faces a critical timing constraint - they must start cutting rates by May or June, or risk being unable to cut at all before the November election due to the political optics of starting a cutting cycle during campaign season. Bianco sees this creating a potential shock for markets that have priced in multiple rate cuts, while also supporting a stronger dollar as the US outperforms globally. The interview covers implications for stocks, gold, and other assets, with Bianco arguing that current market complacency could be severely tested by upcoming economic data releases, particularly the March 12th CPI report.
Key Insights
- Bianco argues that inflation bottomed at 3.1% in June 2023 and will remain sticky around 3% rather than continuing toward the Fed's 2% target
- He contends that unfavorable base effects from very low year-ago numbers will prevent inflation from declining further even with modest monthly prints
- Bianco claims that housing inflation will remain stickier than expected because cumulative rent gains haven't fully filtered into CPI data yet
- He argues the post-2020 economy fundamentally changed, with Americans now spending 96% of income versus 94% pre-pandemic, creating persistently hotter growth
- Bianco believes the Red Sea shipping disruptions could add 0.7% to inflation if they persist for a year, contributing to goods price pressures
- He argues the Fed faces a critical timing constraint where they must cut rates by May/June or risk being unable to cut before the November election due to political optics
- Bianco contends that starting rate cuts during July (between Republican and Democratic conventions) would make the Fed part of the political narrative they want to avoid
- He argues that US economic outperformance versus other developed nations (which are experiencing recession/contraction) supports dollar strength and reduces Fed cutting urgency
- Bianco believes markets remain complacent about rate cut certainty while economic data suggests a different trajectory, setting up potential for significant repricing
- He argues that money market funds yielding 5.3% provide real competition to stocks, reducing the 'there is no alternative' argument for risk assets
- Bianco contends that Wall Street consistently gets rate forecasts wrong, noting they predicted 2-3 hikes in early 2022 but got 17 hikes instead
- He argues that upcoming data releases, particularly the March 12th CPI report, could be pivotal in determining whether markets maintain their rate cut expectations
Topics
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