Why Raising Rates Would Actually Calm Markets | Jim Bianco

**David Hoffman** (0:03)
Bankless Nation, we are joined once again with a friend of the pod, Jim Bianco from Jim Bianco Research. Jim, it's good to have you back.

**Jim Bianco** (0:09)
Thanks for having me, looking forward to the conversation.

**David Hoffman** (0:12)
There has been a structural transformation at the Fed. I think these are the right words to describe what's going on with the incoming new Fed Chair, Kevin Warsh.
And there's so much to talk about. There's whether it's hawkish or dovish or neutral Fed, we got to talk about the increasing rates at the long end of the curve, the inflation regime, so much to talk about. I don't really know how to start off this interview other than asking the big broad question, which is when you look at the Fed and you try to read Kevin Warsh and what the Fed is up to, what's your first reaction? How are you reading the Fed?

**Jim Bianco** (0:50)
So I think you're right, there has been a big change at the Fed. And that change is that usually what we think about with the Fed is the way you structured the question. How do we read the chairman? What does the chairman think? There's 12 voters. What about the other 11? And for decades, they didn't count. You know, they did what the chairman told them to do. Now, behind the scenes, they could kind of, you know, make their case to the chairman in quiet. But when it came to the vote, everybody fell in line and voted with the chairman. I think that's changing right now. And I think that if you wanted to use an analogy, they're going to be more like the Supreme Court. That, you know, we don't hear, we wouldn't, as Americans, tolerate for one second if the Supreme Court heard all arguments, and then they retired to their cloakroom, and they all looked at Chief Justice Robertson and go, so boss, how are we voting on this one? You know, but that's essentially how the Fed has been working. Now, what's changed is that I think it's Trump's incessant attacks on the Fed, and the Fed worrying about their independence, worrying that Trump's appointees are going to do his bidding. And how does the Fed maintain its independence if it has a bunch of people that just do what the president wants them to do?
And what the Fed is starting to wind up being is 12 independent voters.
And so, we've seen this now. We've had 10 dissents this year, more than any time in the last couple of decades. The last meeting on July 29th, we had three dissenters all in the same direction to raise rates, nine to not raise rates. That's the most dissenters in the same direction. Sometimes you get them two-sided, some to raise, some to lower, and then some in the middle, but the most in the same direction in 10 years.
And we also saw going in to the July 29th meeting that the Fed Fund Futures or Cal-She or Poly, if you want to look at those, because they kind of say the same thing, had a 35, 40% chance that the Fed was going to hike rates. And we've always been comfortable with this idea that, or used to, I should say, this idea going into a Fed meeting that the probability of a move was either 2% or 98%.
And so this is kind of in the middle. So what I think has changed about this Fed is it's 12 voters. And Fed watching, I've been arguing, is a vote telling exercise. Listen to their speeches. Put them in the hike holder cut column. And then the day before the meeting, which one has the majority, that's the way they're going to vote. Now one last thing.
You're always going to have Fed officials that are in the middle on the, you know, could be persuaded either way. So the chairman's going to have a lot of influence. So when it comes to, I'm 50-50, I could go either way. Then if the chairman says, I'm voting this way, there might, they most likely might want to vote with the chairman. So he's still going to be the most important voice, but he's not going to be the only voice. And then finally, don't forget that Jay Powell is still a Fed governor. He didn't leave. And Jay Powell said, I'm going to fold into the background, meaning he's not going to give any speeches. And he's going to vote with the chairman. So the chairman kind of walks into the meeting with two votes, right? His and Powell's vote is what he does. So he's still important, but he's not nearly as important. So to understand this Fed, you have to understand the dynamics of how everybody is viewing things and how everybody is voting.