“Get Used to 3-4% Inflation and 4-5% Interest Rates” | Jim Bianco on Fed’s June Meeting and Resilient U.S. Economy

Speaker 0: Forward guidance is brought to you by Van Eck, a global leader in asset management since 1955. You'll be hearing more about a Van Eck ETF later on. For now, let's get into today's interview. We are recording the afternoon of Wednesday, June 12th. Fed chair Jay Powell just got off the podium, addressing reporters at the Federal Open Market Committee.

Today was a very strange day in that we had both a price index inflation report in the morning and then the Fed meeting at the very same day. So lots of lots of news. The morning, inflation report came in lower than expected, 3.3% on the CPI versus, the 3.4% expected, which drastically lowered yields that sent the stock market soaring for the rest of the day. And the Federal Reserve, dot plot statement that came out the this afternoon, 2 PM, pricing fewer cuts than the market expected, so nominally more hawkish. And, the press conference as well was was, very, very interesting.

And I I wonder if it's safe to say that the, it was it was the more hawkish from the Fed than the market expects. I'm very curious to see what my guest has to say. I am joined by Jim Bianco of Bianco Research. Jim, so glad to have you here back on forward guidance. Welcome back.

Did you think that the Fed meeting today was hawkish?

Speaker 1: Hawkish in the respect that the Fed went from let's start with 2024. They went from on their dot plot 3 cuts for the year down to 1. And their argument has been made that the Fed does not want to stop start and stop. So in other words, they weren't gonna make that first rate cut in September, and then they got 4 rate cuts in 25, and then wait 2 meetings, you know, skip the November, skip the December meeting, and then maybe cut a second time in January. So the inclination was, if there's only gonna be one rate cut, it's probably gonna be in December.

But maybe Jay Powell will talk you back into thinking that, no, they might go earlier and then pause before we get that second rate cut. And he didn't do that. So if you take the dot plot at its face value, and I might add it's not always right, it looks like we're still 6 months away from that first rate cut. And that's provided, of course, that the data cooperates. And cooperate means, in this case, it weakens.

The labor market data weakens. The economic data weakens. The inflation data continues to weaken in order to justify that rate cut. Remember back in January when we were thinking that there'd be 6 rate cuts? And the reason that we've made it all the way to the June meeting without one is the Fed seems to be ready to cut rates, and they're ready and they're ready, and then the data comes in and it's too strong and it's too strong and it's too strong, and they can never quite get to the point where they could cut rates.

And now the takeaway here is, look, we're still 5 or 6 months away from the next rate cut, and there's a lot that can happen in that 5 or 6 months that could, you know you know, push them one way or the other.

Speaker 0: And do you think that today's weak inflation reading, lower than expected, Street Journal, Asked him that question, and Powell reminded him and and the other journalists that the Fed did and and FOMC participants did have the ability to change their their dot plot. And, of course, he can change his comments to you know, because he has control over his comments. But, he remained silent, did not answer the question of whether that did there were actual changes. Do you have a a guess on that? And that's all we can do is guess.