Jim Bianco: The Fed Has Changed Forever

Summary

Jim Bianco argues the Fed is undergoing a fundamental shift away from the 'Maestro' model toward a more independent, divided committee that no longer offers forward guidance. He believes inflation remains sticky above 3% and that the Fed should be raising rates, but expects no hike at this meeting. Without a Fed panic, long-dated Treasury yields will keep rising, with the 10-year potentially reaching 5.5%.

• Fed is fundamentally changing: chairman is now one of 12 votes, not a dominant force, and forward guidance is being eliminated.
• Trump's attacks have spurred FOMC members to vote independently, leading to more dissents and internal clashes.
• Bianco thinks the Fed should raise rates because core inflation is above 3% and the labor market is historically strong.
• The bond market remains elevated because the Fed is not panicking about inflation; a rate hike could put a peak in yields.
• If the Fed does not act, Bianco sees the 10-year note yield rising to 5.5% and 30-year yields moving higher from already elevated levels.
• Wall Street has not yet adjusted to the new Fed regime, creating near-term uncertainty and potential volatility in bonds.