Ed Yardeni sees the Fed pausing interest rate cuts in 2024 after the jobs report
The Federal Reserve’s monetary easing campaign for 2024 may be over because Strong labor report Friday underscored the stubborn resilience of the world’s largest economy, according to Wall Street veteran Ed Yardeni.
According to the founder of Yardeni Research Inc., famous for coining the “Fed Model” and “bond vigilante,” further policy easing would risk sparking inflation just as oil prices recover and China is looking to restart its economy.
The central bank’s decision to lower interest rates by half a percentage point in September – a move typically used to tackle economic downturns or market crashes – was “unnecessary,” the market prognosticator said. necessary” as the economy is surging and the S&P 500 index is near record levels.
“They don’t need to do anything more,” Yardeni wrote in an email response to questions. “I think some Fed officials regret doing so much.”
Stocks rose Friday while Treasury yields and the dollar jumped after government data showed nonfarm payrolls rose the most in six months. The report also adjusted hiring numbers for the previous two months and showed a decline in the unemployment rate.
Yardeni is the latest to endorse Fed policy after data on job growth beat all estimates. Earlier Friday, former Treasury Secretary Larry Summers said the central bank’s decision to cut interest rates last month was “a mistake.”
The release also boosted economists at Bank of America corporations and JPMorgan Chase & Co. cut their forecast for a November Fed rate cut to a quarter of a point from a half-point, echoing moves in swap The contract is tied to the outcome of future Fed meetings.
Still, calls for a full Fed pause for the rest of 2024 are not unanimous, to say the least. Many investors see the Fed’s latest rate cut as a step toward normalizing its policy amid easing inflation after a sharp tightening that sent benchmark borrowing costs to high levels. most in two decades.
That said, it’s an idea that Ian Lyngen is currently considering. While the head of US rates strategy at BMO Capital Markets maintained his forecast for a 25% point cut in November, he said a series of data on jobs and inflation will determine the main trajectory. Fed policy ahead of its November 7 meeting. If the October payrolls report turns out to be relatively strong and inflation shows signs of stabilizing, U.S. central banks will likely refrain from cutting interest rates. at the present time, according to Lyngen.
“If anything, the jobs update suggests that the Fed may be reconsidering its caution in cutting interest rates in November — albeit temporarily,” he wrote in a note to clients. stopping is not our base case.” “In our effort to be intellectually honest, it is worth thinking briefly about what will cause the Fed to pause next month.”
To critics of the Fed’s policy shift, the market has arguably overpriced the rate cuts. According to Yardeni, the risk is that further easing will make investors excited, setting the stage for a painful market event.
“Any further rate cuts would increase the likelihood of our 1990s-style meltdown scenario for the stock market,” he said. During that period, the S&P 500 lost more than a third of its value from peak to trough.
