MacroVoices #496 Jim Bianco: The Post Covid Economy

Episode Summary

Executive Summary: Macro Voices spotlights Jim Bianco’s thesis that the post-COVID economy is a new regime: inflation and labor dynamics no longer follow pre-2020 playbooks. He argues Fed cuts may steepen the curve by reviving inflation fears, while Trump-era policy shifts, immigration changes, and stablecoin finance could reshape markets, rates, and the financial system.

Main Topics: Post-COVID economy as a new regime (Priority: 5/5): Bianco argues the pandemic/restart was the biggest economic event of the lifetime and that pre-2020 macro models no longer apply. He frames current inflation, labor, and rate behavior as part of a structurally different economic cycle. Fed cuts, inflation, and long-term yields (Priority: 5/5): The interview centers on the idea that cutting short-term rates in a sticky-inflation environment could push long-term yields higher rather than lower, as markets price in renewed inflation risk. Jobs report, immigration, and labor supply (Priority: 5/5): Bianco links low job prints to a collapse in labor supply from tightened border policy and net-negative immigration, arguing that break-even monthly payroll growth may be far lower than markets assume. Federal Reserve independence and political control (Priority: 4/5): The discussion explores how the Trump administration could reshape the Fed via new governors, expired regional bank president terms, and potential pressure that would reduce central bank independence. Stablecoins, crypto, and payment rails (Priority: 4/5): Bianco sees stablecoins as part of a broader push to modernize payment infrastructure and potentially channel global savings into Treasury demand, though he doubts the scale will match the ambition. Trump policy shock-and-awe on tariffs and taxes (Priority: 3/5): The conversation extends the administration’s shock-and-awe approach from tariffs and immigration to a possible tax restructuring, including an 'external revenue service' concept funded by tariffs. Post-game trading setup: curve steepener (Priority: 4/5): Patrick translates Bianco’s view into a trading expression, favoring a 5s30s steepener because higher inflation expectations could pressure long-duration bonds more than intermediate maturities.

Key Arguments: The pandemic created a post-COVID economy, so pre-2020 assumptions about inflation, labor growth, and neutral rates are outdated. A Fed rate-cut cycle can be inflationary if it occurs in a 3%-4% inflation environment, causing long-term yields to rise even as short rates fall. The U.S. labor market may need far fewer monthly jobs because immigration has slowed or turned negative; low payrolls do not necessarily imply recession. The Trump administration may be trying to reshape the Fed, not just lower rates, through new appointments and pressure on existing institutions. Stablecoins may become a new payment rail that increases Treasury demand, especially in developing markets, but developed-world demand would mostly be substitution rather than net new capital. Sovereign yields are driven more by growth and inflation expectations than by pure credit risk; the U.S. is not priced like a corporate mortgage despite political rhetoric. A 5s30s steepener is the cleanest way to express the view that rate cuts amid sticky inflation will pressure long-end yields more than belly yields.

Data Points: Macro Voices episode: 496 - Episode number produced on September 4, 2025. SP 500 weekly change: +81 bps - Patrick’s macro scoreboard as of September 3, 2025. U.S. dollar index weekly change: -3 bps to 98.15 - Dollar consolidating around 98. WTI crude oil weekly change: -28 bps to 63.97 - October WTI failed to hold breakout. Arbob gasoline weekly change: +203 bps to 250 - Gasoline was stronger than crude. Gold weekly change: +542 bps to 3,635 - December gold broke to all-time highs. Copper weekly change: +312 bps to 463 - December copper showed a bounce. Uranium weekly change: +262 bps to 76.40 - U308 showed signs of life after sideways action. U.S. 10-year Treasury yield: 4.21% - Down 1 bp and near multi-month lows. Core CPI: 3.1% - Bianco used this as evidence inflation remains above pre-COVID norms. Inflation above 2% duration: 54 months - Bianco noted inflation has been above 2% for nearly five years. Fed funds rate: 4.25% - Bianco argued this is near neutral in the post-COVID regime. Labor force participation rate: ~62% - Used to explain why raising jobs through participation could fuel wage inflation. Population growth / break-even jobs: 0 to 10,000 jobs per month by 2026 - Referenced AEI and Judd Coklo/Peterson Institute estimates under low immigration. U.S. unemployment rate: 4.2% - Bianco said it was unchanged from one year earlier, signaling labor demand is okay. 5s30s spread: ~121 bps - Patrick’s preferred curve-steepener expression. Back-end steepening history: >200 bps - Patrick referenced prior steepening cycles in 2000 and 2008. Stablecoin market share of population with mobile phones: 80% - Bianco cited this to argue even developing countries can access digital wallets. Fed governor vacancies / influence: 4 of 7 governors potentially aligned - Bianco described a scenario where Trump could control the board if Lisa Cook is removed and another governor is appointed.

Pivotal Quotes: "we are in a post-COVID economy, and too many people like Jay Paul keep talking about the economy normalizing." — Jim Bianco: Bianco’s core thesis that the old economic playbook no longer applies. "cutting rates is supposed to be stimulative. And what the Fed Fear is that will just stimulate more inflation." — Jim Bianco: Explaining why short-term cuts could lift long-term yields in an inflationary regime. "The reason you've never heard this before is that no Fed governor has ever voted no on the reappointment of a Fed president, but that is something that has been floated out there as well." — Jim Bianco: Discussing how the Trump administration might reshape the Federal Reserve.

Implications: Listeners should view rates, inflation, and labor data through a post-COVID lens. If Bianco is right, cuts could steepen curves, gold may stay strong, and the Fed’s independence and payment-system architecture could become major market catalysts.