Revolt in the Bond Market: Jim Bianco on Why the Fed’s Rate Cuts Are Backfiring

December 20, 2024 - The stock market sold off this week after the Fed cut rates by another 25 basis points. Why? Financial Sense Newshour speaks with Jim Bianco at Bianco Research about the important events happening in the bond market, particularly with long-term bond yields, which have risen due to inflation concerns. Bianco and Financial Sense's Jim Puplava discuss how the Federal Reserve has cut rates three times since September, but long-term bond yields have risen, an unusual phenomenon last seen in the 1960s and 1970s. According to Bianco, the bond market is rejecting rate cuts due to concerns that they may overstimulate the economy and fuel inflation, especially in an environment already experiencing inflationary pressures. Bianco and Puplava also discuss the implication of Trump's policies, the large difference between when Trump took office in 2017 vs. today, and current opportunities in the fixed income market as bond yields near 5%. If you're looking for greater insights into this week's sell-off in the stock market and some of the larger trends impacting the investment outlook moving forward, you'll definitely want to hear what Jim Bianco has to say.

[@nohopeequalsnofear3242]

It took 5 minutes for your show to start

[@kbl1230]

looking to listen for a third time tomorrow

[@KingCutlet]

In all seriousness, how does raising or lowering the fed funds rate have anything to do with inflation? If business financing is priced on the 10 year. And houses are on 30. And those are by far the largest sources of credit in the economy. Then what difference does it make what the fed funds rate is? The government isn’t price sensitive to interest rates. And only companies rolling over debt eminently would be affected by it. So in and electable timeframe how could it make any difference what the federal reserve does with regards to short term funding ?

[@netizenkane2230]

The gov is exposed to the rate (especially since they are issuing so much STIRs). The short term rate was hugely manipulated for nearly 20 years. Zirp and QE infinity. That allowed negative real rates, and forced investment into riskier alternatives (pushing RE prices and rents up). The Fed was also suppressing mortgage rates with MBS purchases. The short term rate is a huge expense item for the Fed budget. You need to study rates, banking, credit, and government financing (economics) more extensively.

[@bobsondugnutt7526]

@@netizenkane2230 Question for either of you - how far off am I in saying: an increased fed funds rate makes financing for individuals and institutions more difficult to obtain, which reduces demands for goods and thus reduces inflation. I'm not schooled on the technical details, but is that 10,000ft view enough?

[@netizenkane2230]

@@bobsondugnutt7526 In theory, yes. But it also depends if in a cutting or hiking cycle. The market can have different phases.

[@bobsondugnutt7526]

@@netizenkane2230 Gotcha. Assuming inflation went from 9% to 3% in the past couple years as a result of 1) the hiking cycle and/or 2) reestablishment of supply chains post covid. The Fed does not seem surprised that inflation has fallen. (Official numbers of course, your grocery bills may vary)

[@KingCutlet]

@@netizenkane2230 read back what you said. It’s only a large expense for the federal government. And they are not price sensitive. The government doesn’t spend less when interest rates are higher. If anything they spent more. All the largest originators of credit in the economy are NOT short term rate sensitive. They are priced on much longer time frames. So my question is specifically, who changes any spending patterns based off of the short term rate? The manipulation of short term rates has no bearing on the 10 20 30 year bonds, even the Fed recognize this. Everyone knows the Fed can manipulate the short term but that has no explaining powers for anything that I’m describing above. So who is this mythical borrower who borrows less when rates are short term higher. Because it certainly isn’t the government.

[@flavius3896]

Trump is not an economist. He is a beauty contest and wrestling promoter. He should stick to what he knows. Tweeting is not leading. Maybe the Presidential term should be 24 hours instead of 4 years.

[@ssuwandi3240]

Well his Treasury pick once broke the Bank of England😅

[@paulo4371]

You better add quantum computing because the world is heading to AI plus Quantum

[@broersverband7586]

its the never ending bla bla never going to happen