Stocks and corporate bonds are set to take a hit as financial markets signal that the Federal Reserve will tighten financial policy to combat inflation, Jim Bianco told Bloomberg's "Surveillance" television show Wednesday.
A jump in treasury yields has "been a huge move and a tremendous total return loss," the founder of Bianco Research said.
Bianco points out that the quantitative tightening that the Federal Reserve is expected to undergo hurts risk markets like the equity market and corporate bond market.
"[The Treasury] market had a $1.5 trillion buyer, and if they are going to leave, it needs to find a $1.5 trillion buyer, and the bond market will. It will take it away from the corporate bond market and the equity market. Those markets are going to struggle," Bianco said.
The Federal Reserve has signaled that it will be proactive to combat the worse inflation the U.S. has experienced in nearly 40 years.
“If we have to raise interest rates more over time, we will. We will use our tools to get inflation back," Fed Chairman Jerome Powell told the Senate Banking Committee earlier this month.
Powell was asked about the Fed's plans to shrink its $8.77 trillion balance sheet and vaguely said that at some point this year it will allow the balance sheet to run off.
The Bloomberg U.S. Treasury Total Return Hedged USD Index has lost more than 2% so far in January. Meanwhile the S&P 500 has declined 4%.