The Bell Curve Is About Policy. And It’s Wrong.

CNBC logo×

Keep Me Logged InSponsored: Gambar Koala

The Fed thinks it's safe to keep hiking rates — it's wrong, market researcher says

Keris Lahiff | @kerisalison
show chapters
    This Fed’s aggressive rate hike plans is ‘how you break an economy,' market researcher says> > Fed’s aggressive rate hike plans ‘how you break an economy,' market researcher says   

    The Federal Reserve is widely expected to hike rates again at its September meeting in two weeks, another in a string of anticipated increases through next year.

    The central bank needs to slow its roll to avoid "breaking" the economy, said James Bianco, president of Bianco Research.

    "What's the leading cause of breaking an economy? Too tight Fed policy. What's the leading reason the Fed goes too tight? Because they think economies are A-plus, they raise rates too much, and they wind up choking off an economy," said Bianco on CNBC's "Trading Nation" on Monday.

    While markets and the Fed see a U.S. economy charging forward, Bianco is more conservative with a "B-plus" grade. He said while there's nothing fundamentally wrong with the economy, inflation stalling at the Fed's 2 percent target suggests a softer approach to monetary policy might be required.

    "It's a good economy. The Fed should raise rates in September, maybe one more time, maybe two tops, between now and the end of next year. If we start thinking about six rate hikes, we've gone too far," he said.

    The chances of a 25 basis point hike in late September sit at more than 98 percent, according to CME Group fed funds futures. Markets are pricing in a 75 percent chance of a December increase, the fourth of the year. Goldman Sachs forecasts a similar pace in 2019.

    As the Fed signals a readiness to keep on hiking into the new year, Bianco warns it's ignoring a major red flag.

    "The signal that they're going too far is if the yield curve inverts," said Bianco. "The yield curve hasn't inverted but we just had John Williams, the president of the New York Fed, last week saying 'This time is different, if the yield curve inverts it's no big deal, we have to continue to raise rates.' This is exactly how mistakes are made."

    The yield curve inverts when shorter-term bonds yield higher than longer-term bonds. It is typically seen as a warning sign of a looming recession. The yield curve inverted in December 2005 and acted as a signal of the coming 2008 recession.

    The 2-year/10-year yield curve closed less than 20 basis points from an inversion on Aug. 24, its lowest level since July 2007.

    Vote Vote to see results Total Votes:

    Not a Scientific Survey. Results may not total 100% due to rounding.

    show chapters
      Investors could be making an expensive mistake by ignoring the yield curve: Jim Bianco> > Investors could be making an expensive mistake by ignoring the yield curve: Jim Bianco   
      Keris LahiffMarkets Producer>>

      Trading Nation

      More From Trading Nation


      Trades to Watch

      Trader Bios


      Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

      Sara Eisen

      Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

      In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

      Read more


      Tweets by @TradingNation


      Share this video...


      Watch Next...


      News Tips

      Got a confidential news tip? We want to hear from you.

      CNBC Newsletters

      Sign up for free newsletters and get more CNBC delivered to your inbox

      Get this delivered to your inbox, and more info about our products and services. Privacy Policy.

      © 2018 CNBC LLC. All Rights Reserved. A Division of NBCUniversal

      Data is a real-time snapshot *Data is delayed at least 15 minutes. Global Business and Financial News, Stock Quotes, and Market Data and Analysis.

      Data also provided by Reuters>

      Source :

      The Fed thinks it's safe to keep hiking rates — it's wrong, market researcher says
      Ray Dalio says the economy looks like 1937 and a downturn is coming in about two years
      An Upheaval: Systematic Thinkers Toll The Bell
      Let’s talk about bell curves
      The Black Swan and the Bell Curve
      FROM an editorial in the New York Times:"The Bell Curve...
      ‘Battle for Azeroth’ doesn’t let you play your way, and that sucks
      Kajan Johnson talks split decision loss at UFC Moscow, clarifies comments about officials, Sean Shelby
      Local filmmaker covers Volkswagen’s lies and more
      What You Can Learn from the Yield Curve