MacroVoices #417 Jim Bianco: FED Cuts, May, June or Bust?

Episode Summary

Executive Summary: Jim Bianco argued inflation has likely bottomed near 3.1% and may stay sticky or reaccelerate because of gasoline, base effects, housing, goods disruptions from the Red Sea, and wage pressure. He said the Fed needs to start cuts in May or June or risk delaying them until after the election. The post-game tied this to equity complacency, a strong dollar bias, rangebound gold, and a constructive crude/uranium backdrop.

Main Topics: Inflation likely bottomed; “last mile” to 2% is not assured (Priority: 5/5): Bianco challenged the consensus that inflation is smoothly returning to 2%, arguing 3.1% year-over-year CPI may be the cycle low and could hold through spring or even rise toward 4%. He emphasized that the economy changed after 2020 and that nowcasting has distorted expectations. Why the Fed may need to cut by May or June (Priority: 5/5): He argued the Fed cannot wait much longer if it wants to begin a rate-cutting cycle this year. If cuts do not start in May or June, political and calendar constraints may make it difficult to begin before the election, especially during the July-to-November window. Housing, goods, and wages could keep inflation sticky (Priority: 5/5): Bianco said real-time rent data understates cumulative housing inflation and that home prices are firming. He also pointed to Red Sea shipping disruptions and stronger wage trends as additional inflationary pressures. Market complacency and the stock/bond disconnect (Priority: 4/5): The interview argued that equities are pricing in cuts as a foregone conclusion while bonds have already begun to reflect higher-for-longer risk. Jim suggested markets are underestimating the chance of fewer cuts or none at all. U.S. growth outperformance versus the rest of the world (Priority: 4/5): Bianco said U.S. consumers are spending more aggressively than before the pandemic, keeping growth hot relative to Europe, the UK, Japan, Germany, and Canada. He linked that divergence to a stronger dollar and less urgency for Fed easing. Asset-class implications: dollar, gold, crude, uranium, and equities (Priority: 4/5): The post-game discussed technical levels and macro implications: the dollar may break higher, gold may remain rangebound if inflation stays firm, crude looks tight despite muted tape action, and uranium remains fundamentally strong but vulnerable to retail-driven volatility.

Key Arguments: Inflation is likely not resuming a clean descent to 2%; the June 2023 low may already be in place. Base effects and rising gasoline prices make upcoming CPI prints look firmer, not softer. Housing inflation is stickier than headline real-time rent trackers suggest because cumulative price gains have not fully flowed through CPI. Red Sea shipping disruptions can add meaningful goods inflation if they persist, especially in a just-in-time supply chain. Wage measures are still running hot enough to prevent rapid disinflation. If the Fed does not begin cuts in May or June, election-season calendar risk makes a July or September start politically awkward. The market is complacent because it has internalized Fed guidance that cuts are coming, but the timing and number of cuts are far from certain. U.S. growth is structurally stronger than developed-market peers, supporting a stronger dollar and less pressure on the Fed to ease. Higher money-market yields remain a serious alternative to equities, limiting the urgency to rotate cash into stocks. Gold is not guaranteed to break out; without stress or disinflation, it may just consolidate in the low-2000s.

Data Points: Episode: 417 - Macro Voices episode identifier Production date: February 29, 2024 - Episode production date SP 500 futures: +170 bps to 5,081 - Macro scoreboard at the close of Wednesday, Feb. 28, 2024 U.S. Dollar Index: 103.91, down 8 bps - Weekly macro scoreboard WTI crude oil: 78.54, up 81 bps - April WTI contract on the scoreboard April gasoline (RBOB): 255, up 79 bps - Scoreboard gasoline market Gold: 2042, up 39 bps - April gold contract on the scoreboard Copper: 384, down 103 bps - Scoreboard industrial metals Uranium: 94.45, down 484 bps - Scoreboard uranium contract U.S. 10-year Treasury yield: 4.26% - Scoreboard fixed-income benchmark Current CPI view: 3.1% year-over-year - Bianco's estimate of the recent inflation low Expected CPI print: About 0.4% monthly - Bianco argued base effects and gasoline could keep prints elevated Housing inflation gap: 18% to 20% vs. about 30% - Bianco contrasted CPI shelter inflation with real-time cumulative housing gains Red Sea inflation impact: 0.7 percentage points - Oxford Economics estimate cited for a year-long disruption U.S. consumer spending share: 69% of GDP vs. 67% pre-pandemic - Bianco described stronger post-2020 spending intensity U.S. savings rate: 4% vs. 6% in 2010-2020 - Evidence of elevated consumption after 2020 Q3 2023 U.S. GDP: 4.9% - Example of strong U.S. growth Q4 2023 U.S. GDP: 3.3% - Continued above-average U.S. growth Money market yield: 5.3% - Bianco used this to argue cash is an attractive alternative to equities Stock market expected return: About 8% per annum - Bianco cited long-run market return expectations June Fed pricing: 57% probability of a cut - Market pricing cited in the interview SPX levels: Resistance 5,100; support 5,000; implied move +/-100 points into Mar. 15 OpEx - Post-game technical analysis QQQ levels: Resistance 440; support 410; implied move +/-12 points into Mar. 15 OpEx - Post-game technical analysis VIX: ~14%, breakout watch around 16 to 20 - Post-game volatility discussion Dollar index technical level: 104 to 104.50 - Key pivot discussed by hosts and Nick Gold technical pivot: 2050 area - Post-game chart level for constructive/breakdown signal Crude oil inventory build: 4.2 million barrels - EIA weekly crude inventory data Cushing build: 1.5 million barrels - EIA weekly crude inventory data Gasoline draw: 2.8 million barrels - EIA weekly petroleum data Distillate draw: 510,000 barrels - EIA weekly petroleum data U.S. production: 13.3 million barrels/day - EIA weekly crude output SP rally: 1,000 points in 120 days - Used to illustrate the sharp, extended market advance Leverage: 99th percentile on a one-year basis - Goldman CTA/leverage discussion in the post-game CPI concern date: March 12, 2024 - Upcoming CPI release identified as a major catalyst Jobs report date: March 8, 2024 - Upcoming payrolls release Jobs creation: Two consecutive months of 300,000 jobs - Bianco cited labor-market strength Wage growth: 0.6% in January - Used as evidence of wage pressure

Pivotal Quotes: "“2020 was a big deal. It really changed a lot of attitudes.”" — Jim Bianco: Core framing for why post-pandemic inflation behavior differs from the pre-2020 era "“If you don’t get it in June, then I think the Fed is going to want to not be part of the narrative.”" — Jim Bianco: Explaining why the Fed may need to start cuts by May or June rather than later in the election year "“If what I said is correct… that’s not necessarily stress.”" — Jim Bianco: On why elevated inflation with a strong economy may keep gold capped rather than trigger a major rally

Implications: Markets may be overpricing 2024 Fed cuts. A hotter spring CPI path could pressure equities, support the dollar, keep gold rangebound, and delay easing until late 2024 or beyond. Crude and uranium remain fundamentally constructive but vulnerable to volatility.