Why this long-time market strategist is arguing against a Fed rate cut
For Wall Street, a Federal Reserve rate cut next week is all but guaranteed. Ed Yardeni doesn’t think the central bank should ease policy. “Our Roaring 2020s economic scenario and expectations for inflation and the labor market suggest that the Fed probably shouldn’t cut interest rates this year,” Yardeni, the chief investment strategist at Yardeni Research, wrote to clients this week. “Stimulating an economy that doesn’t need stimulation won’t create more workers to address the undersupply that’s constraining the demand for labor.” Expectations for at least a quarter point rate cut were solidified this week after the release of new U.S. labor and inflation data. The Labor Department said Thursday that initial weekly jobless claims spiked to their highest level since 2021 . Wholesale inflation prices also fell unexpectedly last month. The implications for future Fed policy moves had investors giddy this week. The Dow Jones Industrial Average, S & P 500 and Nasdaq Composite all hit record highs Thursday and are on pace for strong weekly gains. But Yardeni, who began his career in the economics research department of the New York Fed in 1977, doesn’t think the economy is weak enough to merit easier monetary policy. He also warned that “cutting rates when it’s not necessary could cause stock prices to melt up and destabilize the broader financial system.” “Our concern is that lowering interest rates will lead to financial instability, including a meltup/meltdown in the stock market. Solid productivity led growth in real GDP implies that currently interest rates are just fine where they are,” he said. The Fed will begin its two-day policy meeting Tuesday, with a decision scheduled for Wednesday. The CME Group’s FedWatch tool shows traders, as reflected in interest rate futures pricing, seeing a 92.5% chance of a quarter-point rate cut, as well as a 7.5% probability of a bigger half-point reduction.
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