Jim Bianco: Why the Fed Is Making a Policy Error (And All Roads Lead to Inflation)

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Jim Bianco: Why the Fed Is Making a Policy Error (And All Roads Lead to Inflation)

dxy

the only thing that's not rallying is the dollar Explicitly states the dollar is the only asset not participating in the broad rally. In context of everything else going up, this implies dollar weakness or sideways/underperformance.

9/17/2025 1:26:35 PM	short term down	5 days later	-0.09%	+0.09%
9/11/2025 11:36:08 PM	medium term cautious down	20 days later	+0.31%	-0.15%
8/14/2025 2:49:30 PM	medium term cautious down	20 days later	+0.51%	-0.26%

metals

gold at an all-time high, silver's rallying Explicitly mentions gold and silver rallying, with gold hitting $4,400. Notes Jamie Dimon recently predicted $5-6k and we're already close. Part of the 'everything rally' driven by animal spirits and inflation hedging.

10/15/2025 9:40:53 PM	medium term sharp up	20 days later	-8.88%	-13.31%
10/14/2025 3:53:14 PM	short term sharp up	5 days later	-0.74%	-1.11%
9/11/2025 11:36:08 PM	short term up	5 days later	-0.42%	-0.42%
9/4/2025 11:05:46 PM	medium term sharp up	20 days later	+6.42%	+9.64%
9/4/2025 9:35:50 PM	long term up	60 days later	+11.57%	+11.57%

Show all 5 metals results

ndx

the stock market's railing Bianco explicitly states stocks are at all-time highs and rallying, driven by animal spirits and passive flows. He describes a 'perpetual motion machine' of buying. However, he views this as unsustainable and bubble-like, especially in AI.

10/14/2025 3:53:14 PM	short term up	5 days later	+1.60%	+1.60%
8/14/2025 2:49:30 PM	medium term cautious down	20 days later	-0.33%	+0.17%

yields

Bianco argues the Fed is making a policy error by cutting rates when it's unnecessary, which will create inflation. He cites the example of last year when the Fed cut 150 bps and long-term yields 'went straight up' because the market anticipated inflation. His core thesis is that cutting now will repeat that mistake, implying yields will rise as inflation expectations increase.

10/14/2025 3:56:23 PM	medium term up	20 days later	+1.06%	+1.06%
9/29/2025 3:25:33 PM	short term cautious down	6 days later	+0.34%	-0.17%
9/17/2025 1:26:35 PM	short term down	5 days later	+0.39%	-0.39%
9/15/2025 3:58:32 PM	short term cautious down	6 days later	+2.91%	-1.45%
9/4/2025 11:05:46 PM	medium term cautious up	20 days later	+2.10%	+1.05%
9/4/2025 9:35:50 PM	medium term cautious up	20 days later	+2.10%	+1.05%
8/28/2025 4:47:53 PM	medium term cautious down	20 days later	-2.91%	+1.45%
8/26/2025 4:19:00 PM	short term cautious down	6 days later	+0.92%	-0.46%
8/26/2025 4:05:31 PM	medium term sharp up	20 days later	-5.00%	-7.50%
8/26/2025 1:00:15 AM	medium term sharp up	20 days later	-5.00%	-7.50%
8/25/2025 3:41:18 PM	short term cautious down	7 days later	+0.45%	-0.22%
8/20/2025 6:53:54 PM	medium term cautious up	20 days later	-6.88%	-3.44%
8/19/2025 5:49:35 PM	short term cautious down	5 days later	-0.49%	+0.24%
8/14/2025 2:49:30 PM	medium term cautious down	20 days later	-3.51%	+1.76%
8/7/2025 2:21:54 PM	medium term cautious down	20 days later	-1.82%	+0.91%
8/5/2025 3:48:43 PM	medium term sharp up	20 days later	+0.90%	+1.35%
8/4/2025 3:58:24 PM	medium term cautious up	20 days later	+1.88%	+0.94%
7/19/2025 1:58:49 AM	medium term cautious down	21 days later	-2.26%	+1.13%

Show all 18 yields results

Big picture macro view for you today. What do you make of where we are in the markets and the economy? What's on your radar now? And where do you see things headed?

Julia LaRoche
Jim Bianco

The labor market has slowed dramatically from 158,000 jobs/month to 29,000, but this matches the new population growth reality of near-zero immigration. The Fed is cutting rates to 'juice' the economy, but we can't get to 100,000 jobs/month without massive wage inflation because there are no new workers.

Population growth has gone from above average to an 80-year low in 4-6 months due to border closure. The Dallas Fed estimates we only need 30,000 jobs/month. If the Fed tries to stimulate beyond this structural limit, it will cause wage inflation.
Jim Bianco

Markets are all going up: crypto, gold, silver, stocks, bonds, foreign markets. The only thing not rallying is the dollar. They're perceiving the economy is okay and inflation is low, which I don't agree with.
Are they making a policy error by cutting then?

Julia LaRoche
Jim Bianco

The risk is they cut rates to stimulate an economy that doesn't need it and create inflation. We saw this last year: the Fed cut 150 bps and long-term yields went straight up because the market said 'We don't need this, you're just going to create inflation.'

Calls Powell's 'risk management cut' a cynical move to 'get the orange guy off my back.' The Fed is worried employment could go to -50,000, but we don't know that.
Jim Bianco

Inflation is an issue and will stay an issue due to tariffs and remote work. Average tariff rate has gone from 2.5% to ~18%. Companies are now passing these costs along. Core CPI is 3.1% and I think it will go to 3.5-4% by next summer.

Remote work gives labor more power to demand higher wages, as over half of jobs that can be done remotely are now remote. This, plus embedded tariffs, will keep inflation elevated for another year.
Jim Bianco

If you need to create 100,000 jobs/month, you must entice the 62 million people not working (students, housewives, etc.) by raising wages—wage inflation. Overall inflation should follow wage inflation.

The workforce (16-64) is 212 million, with 160 million employed. The remaining 62 million aren't working for various reasons. To get them into jobs requires higher wages.
If you were in that room with Jay Powell, what would you ask him?

Julia LaRoche
Jim Bianco

I would chain myself to the door and say don't cut rates. Look at where financial markets are: stocks, gold, M2, home prices at all-time highs, bonds rallying. What problem do we need to fix? The financial markets aren't worried about low employment.

Monetary policy works through the financial channel. Why stimulate financial markets when they're already at all-time highs? Low employment could be fixed by immigration policy, not rate cuts.
Jim Bianco

Markets are going up due to animal spirits and passive investing. It's a perpetual motion machine: passive flows bid up markets, which excites animal spirits to hand over more money. The 'buy the dip' mentality is extreme—retail investors want bad news to scare others into selling so they can buy.

Cites Mike Green on the passive bid. JP Morgan data shows retail bought aggressively during the April sell-off. Reddit boards show traders wanting bad news to create buying opportunities.
Jim Bianco

This aggressiveness creates mispricing. In AI, 41 companies are 47% of S&P 500 market cap and 70% of gains since ChatGPT. No one is discriminating—it's like the .com bubble. There will be malinvestment, like overbuilding of data centers (similar to Global Crossing's fiber overbuild).

Sam Altman, Jeff Bezos, and David Solomon have all said AI is in a bubble. The mentality is 'my deal will work, yours will fail,' reminiscent of the late '90s.
Jim Bianco

If everybody wins to this degree—gold up 50%, silver 70%, Bitcoin doubled, stocks roaring—people just pay up for everything, and you get inflation. The top 10% save 35% of income and bid up assets; the bottom 90% have zero savings and get crushed by rising prices.

Inflation destroys economies through inequality. The bottom half rents and lives paycheck-to-paycheck; they can't keep up when the top half's asset inflation bids up prices. Polls show people would trade higher unemployment for lower inflation because price increases are permanent.
Jim Bianco

The Fed's mistake would be to prioritize unemployment over inflation. In 2022, Powell told the top half to 'lose money' as patriotic duty to fight inflation. Now he wants to goose asset markets higher, which will just create more inflation.

The risk is the Fed cuts rates, pushes asset markets higher, people spend more, and inflation accelerates. The problems Powell is trying to fix can't be fixed with interest rates.

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