American market researcher Jim Bianco has warned that the Federal Reserve’s tough policy to curb “wild inflation” will cause Wall Street big losses. In his opinion, all financial assets may suffer, writes CNBC.

Bianco was bearish on the stock market at the end of 2021, mainly because of inflation risks. The Fed’s fault, he believes, is that it waited too long to end its pandemic-era “ultra-easy money” policy and raise interest rates.

“Last year’s promise that inflation would be subdued and transitory may be one of the worst forecasts in Fed history,” Bianco said. – Now it [the Fed] is stuck with this ultra-tight policy because it didn’t start raising rates at a very slow pace a year ago.”

The main risk, he said, is that it is not yet known what that catch-up will cost.

What it does intend to do is curb rates. The Fed needs lower inflation, and it’s going to raise rates until it gets lower inflation. How is it going to do that? By slowing demand.

According to Bianco, the Fed’s only solution is to raise interest rates quickly and get people to stop spending money. That said, the bond market is already discounting the central bank’s likely bold action.

“The bond market realizes that. This is probably the worst bond market situation in our lifetime.”

Bianco expects a 50 basis point rate hike at the Fed’s next meeting May 3 – 4.

“It will be a 50 basis point rate hike as long as the Fed doesn’t raise it too much and break something. But the rate won’t go back to 25 points. If the Fed wants the stock market to go up, maybe it should be talking about a 75-basis-point rate hike, not a 50-basis-point hike.”

That said, the Fed does not want to create a recession, but by going down this path and pushing hard to keep inflation in check, it is very likely that it could make a mistake.