Renowned Wall Street forecaster Jim Bianco has cautioned that the window for interest rate cuts may be closing rapidly, just as the Federal Reserve gears up for its two-day policy meeting. However, the economy’s resilience might lead to further delays.
What Happened: Bianco, the president of Bianco Research, anticipates that the central bank will likely postpone any changes until next year, as reported by CNBC on Tuesday.
“If they don’t pull the trigger by June, then it’s November [or] December at the earliest — only if the data warrants it. And, right now, the data isn’t warranting it,” he stated.
Bianco argues that for the Fed to cut rates this spring, the economy would need to weaken, a scenario he does not envision significantly. He described the current economy as having a “no landing phase.”
“It's not a Boeing plane. There's no parts falling off of it, and it's just continuing to move along at probably a 2.5% to 3% pace,” he added.
The upcoming Fed meeting marks two years since policymakers initiated their rate hike campaign. Bianco believes inflation is likely bottoming out at around 3%, which exceeds the Fed’s target of 2%. This, along with the robust economy, makes a rate cut improbable.
Why It Matters: The Federal Open Market Committee (FOMC) meeting scheduled for Mar. 19-20 has been a source of market anxiety. The Fed had signaled a preference for three rate cuts in 2024, with Fed Chair Jerome Powell indicating a willingness to consider rate cuts this year.
However, recent hotter-than-expected inflation data has cast doubt on this plan. This uncertainty is reflected in the bond market, with the CME FedWatch tool showing expectations for a quarter-point rate cut in June falling below 50%.
Bianco’s prediction of climbing yields due to inflation realities aligns with this growing uncertainty. Despite the current economic backdrop, he maintains his forecast of a 10-year yield of 5.5% this year, a level unseen since May 2001.
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