Jim Bianco joins Fox Business to discuss Fed Rate Cut Timing, the Bond Market & Shelter Inflation

absolutely thank you so much Kelly all right joining me now monetary macros.com CIO Joseph Wong Bianco research president Jan biano we got so much brain power here guys we have to open the doors let's you know keep it down here all right let me start with you Joe first time in studio uh and I I was reading your work let's go backwards so the the this Balancing Act for JP you think he'll say okay it's okay to cut rates based on some softness in jobs even though it means longer sticky inflation well first of all it's a pleasure to be here this is a magnificent studio and I I do think that's how it works so the FED ultimately is political in the sense that the people who work there they have certain values and beliefs right and when you look at when you look at what those values and beliefs are they are heavy heavily part of the democratic party right you can see that in public voting data as well and one of the Hallmarks of being of that view of that value is vo employment more than inflation so I think when push comes to shove when we have a little bit higher in unemployment when we have even if inflation is still a bit High I think they're going to cut and I think that's going to keep us stuck with higher inflation simply because politically that's their value system they just really really afraid of unemployment Jim I you know I would agree with that uh that the FED value system does lean that way I would put a Nuance on it that the FED is not necessarily partisan and what I mean by partisan is they don't sit around the fomc table and say who who do we want to vote who do we want to win the November election I don't think they do that at all but I do think that their their political values come in um where I'll take a little bit of disagreement is If the Fed wants to tolerate a little bit higher inflation they're going to risk a bad reaction out of the bond market because I think the Bond Market is comforted when the FED is on the case when they're worried about inflation If the Fed is going to say We'll tolerate a little bit inflation then we'll tolerate owning a little bit less your bonds it push the price down and push the yield higher so now we talked about this a lot for a while you were you you were in no man's land with the no Landing then the bandwagon started to fill up uh right now you've kind of adjusted your your stance here a little bit right yeah um I was always looking for the idea that we would make a new high in yields at five to five and a half we got the four and 3/4s so I kind of moved to neutral uh only because it's 75% of the way done what's the old line on Wall Street pigs get fat and Hogs get slaughtered and I'll take 75% and back off I still think we might get five five and a half but it's not that far away anymore and if we get that without any kind of a major move in the market I suspect I might start thinking about getting long this Market at least looking for a meaningful bond market rally you know Joe one thing I've been worried about and I've used it on a show a few times you know the Hemingway gradually then sudden and I kind of thought about a little bit with the initial jobless claims report came in significantly higher than expected since then they're saying maybe there's a workk with the New York data you know Wall Street always they'll circle the wagons quickly when when the narrative starts to change but do you worry about a sort of some a shock I'm not sure where it would come from but it feels like there's a lot of the economists are too sanguin about this whether they're on either side they believe it's going to gradually keep going up or gradually go down and none of them seem to expect any sort of shock to the system so I think you're right to note that the LA Market has been deteriorating we saw that this morning in jobless claims we saw that in non for payrolls I think what the IST don't see and what they can't see is that this time around we have a significant increase in the supply of labor we have millions of people coming into this country and a lot of them are illegal so we just don't know how many now I think what could happen is as we have weakening demand and we have this ongoing Supply that people just don't know can't see but it's there in the millions we could have a rise in unemployment a weakening in the job market that is faster than certain industries that wouldn't help though I mean like these industries that are saying these aren't necessar all skilled labor you know exact people aren't can't go straight to Silicon Valley and and get a job right right a lot of the people coming you know they're not sending their best so I think in certain sectors we can have unemployment rates shoot up a lot faster than expected so rather than a sudden Shor far on demand I think weakening demand and sudden surgent Supply so Jim what are you saying now that's uh most prevalent on your radar uh probably the economy and inflation you know the inflation rate has really stalled at around let me use CPI you know above 3% it's going to probably be about 3.4 if the estimates are correct for the April CPI report and this whole narrative That Wall Street has had that we were in this last mile to going to 2% and fed officials saying that the inflation rate will fall later this year there's a phrase I use called the base effect look at the numbers from a year ago they're very very low the inflation numbers if we get modest or normal inflation numbers now the year-over-year number might start trending higher and that's going to be difficult for the FED to be making the case that still on the path towards 2% because the numbers won't be headed that way until at the earliest the fall only if you get the data to kind of cooperate so what do you make then Jimma of the the sort of I feel like it's become a wild card housing or shelter because when when pal initially began with this rain hiking cycle it wasn't long after the data was coming in and you know was it was sort of surprising it was still a little bit too hot but the part that was hot was for the most part you know things like insurance but housing is shelter and all the economists would say well the way they fact it the way they figure it out it's always going to be a three or four month lag it's been like a year lag and maybe housing is going in the other direction if that doesn't fix itself then what does the FED do well that that'll be a big problem because no matter what you think about housing it is everybody's biggest cost whether it's rental or the own of a home I think what we're missing with the housing numbers is the is what we talk about with General inflation the cumulative impact of housing of housing inflation since 2020 has been much greater than people think so while they talk about housing rolling over the O are the owner's equivalent rent part of CPI rolling over and bringing down CPI it still hasn't caught up to things like Zillow or apartment.com showing 30 or 40% increases in rent it's only up about 25% that's why I think it's been difficult for it to come down it's still trying to uh you know correct that Divergence I saw a report yesterday said the 2023 uh New York rents went up seven times at New York salary went up and somewhere like one out of four people in Manhattan's a millionaire you have to be and that's just to get a shoe box apartment Joe uh what's what's most preent for you like what are you most concerned about right now so what I'm most concerned about really is the fiscal situation I think what we what's really changing going forward is that if you continue to have a 6% fiscal deficit what you're really doing is you're printing dollars you're debasing the currency and that that I think throws everyone off off course are you surprised these bond yields like this yield the bond auction rather I mean it was a little sloppy but it's still considering how much money they're raising I mean at some point do you think that could be a place where we you know cuz you talked about the Bond vigilantes I guess these Bond auctions seem to be going off okay so far yeah yeah I'm really surprised about the bond market you know if if I were a bond investor and I saw 6% fiscal deficits forever that so much even merited a special mention in the if's reports then I I wouldn't really be buying Bonds in these yields so so I'm with Jim I think bond yields should go higher and I think this is something that perhaps the market because we've been in a multi-decade Bo market for such a long time you have a lot of complacency here you have a lot of people who are basically grown up in a world where you just buy bonds and you make money I think that's I think that's changing and that takes time to to filter into ironically it's changing right before our eyes but it feels like a slow a slow motion train wreck and by the time we all catch on maybe people wish they saw this segment and Jim thank you both very much really appreciate all right folks uh we're going to stick with housing because

Channel: Bianco Research

Views: 8,673

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Id: EZyOfhECLGU

Length: 7min 58sec (478 seconds)

Published: Thu May 09 2024