NEW YORK, NY – As the Federal Reserve’s two-day policy meeting looms, there is speculation that the possibility of interest rate cuts could be dwindling. Market forecaster Jim Bianco from Bianco Research suggests that the central bank is likely to maintain its current stance until the following year.
Bianco believes that the Fed might not alter its policy during an election year, especially during the summer. He suggests that any potential changes would come no earlier than November or December, contingent on warranted data. At present, the economic data does not seem to support such changes.
According to Bianco, for Fed Chair Jerome Powell to consider a cut in the spring, there would need to be a significant weakening of the economy. However, with the economy currently robust, he emphasizes that it is in a stable state, likening it to a plane in a ‘no landing phase,’ moving steadily at a 2.5% to 3% pace.
The upcoming Fed meeting arrives almost exactly two years after the commencement of policymakers’ rate hike campaign. Despite hints of inflation hovering around 3%, which is above the desired 2% threshold set by the Fed, there still lacks substantial confidence in meeting the target. The implications of this uncertainty are reflected in the drop in expectations for a rate cut in June, as shown by the CME FedWatch tool.
Adding to the picture is the rise in Treasury yields, with the 10-year Treasury Note yield hitting 4.328%, marking its highest level in a month. Bianco suggests that these yields could potentially climb even higher, pointing towards the looming reality of inflation. His previous predictions of the 10-year yield hitting 5.5% this year seem to be on track, as he anticipates a continued upward trend.
In a market where consensus views may differ, Bianco remains steadfast in his belief that the yield will continue its ascent. He recalls a past scenario where the economy managed well with a 5% yield, showcasing its resilience to higher interest rates. As the market braces itself for potential shifts, the trajectory of Treasury yields remains a focal point of interest for investors.