Investors are looking for an interest rate cut — but the market may not respond as expected when it comes.
“I think that the market's going to have to come to grips with the Fed is going to cut rates, and is it going to be the right move for the Fed to make now?” Jim Bianco of Bianco Research said on Opening Bid.
July's Consumer Price Index (CPI) report showed core inflation rose 0.3%, the largest increase in six months.
“Last year they cut rates, and the market decided it wasn't the right move,” Bianco added. “And it shot yields on the 10 [year Treasury] and the 30-year up over 100 basis points.”
Bianco said the real inflationary pressure is building due to Trump's tariffs, and the impact could be significant. While some of the costs may be eaten by exporters or corporations, others will be passed on via price hikes.
“There's about an extra $250 to $300 billion of tariffs that are going to be collected over the next year … tariffs were running around $8 billion a month. Now they're running nearly $30 billion a month,” he noted.
Bianco expects Fed Chair Jerome Powell to provide some clarity at the Fed's annual Jackson Hole Economic Symposium later this month. And if Powell signals a September cut isn't coming, the backlash could be intense — including renewed political pressure from President Trump, who has previously floated the idea of firing the Fed chair.
“If he says he's not going to cut rates, I would then put Trump firing him back into the play,” Bianco said.
The Fed's decision could also have an outsized impact on megacap tech stocks. The largest 10% of US companies now account for 76% of total market capitalization, the highest concentration on record, according to market data platform Barchart.
The concentration makes the entire market vulnerable to shifts in interest rates. As yields go higher, money could move out of stocks and into bonds. Bianco warned that if 10-year Treasury yields hit 5%, it could trigger profit-taking in Big Tech stocks.
Bianco advised investors to stay cautious when chasing the market's most popular names. “If you want to play some of these Mag 7s, you have to be prepared for big gains and big losses,” he said. “Some think it's all a one-way street … until it isn't.”
Francisco Velasquez is a Reporter at Yahoo Finance. He can be reached on LinkedIn and X, or via email at francisco.velasquez@yahooinc.com.
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