The Federal Reserve’s 2024 monetary easing campaign may already be over Strong work 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., who invented the “Fed model” and the “bond vigilante,” further monetary easing risks triggering inflation as oil prices rise again and China tries to keep its money back to stimulate the economy.
The market forecaster says the central bank’s September decision to cut interest rates by half a percentage point – a move usually reserved for dealing with a recession or market crash – was “not necessary” as the economy is running at full speed and the S&P 500 hovers near records.
“You don’t have to do more,” Yardeni wrote in an email response to questions. “I suspect several Fed officials regret it so much.”
Stocks rose on Friday as Treasury yields and the dollar jumped after government data showed the biggest increase in nonfarm payrolls in six months. The report also revised hiring numbers for the past two months and suggested a decline in the unemployment rate.
Yardeni is the latest to comment on Fed policy after job growth data topped estimates. Earlier on Friday, former Treasury Secretary Larry Summers said the central bank’s decision to cut interest rates last month was “a mistake.”
The publication also prompted economists to speak out Bank of America Corp. and JPMorgan Chase & Co. lowered their forecast for the Fed’s interest rate cut in November from half a percentage point to a quarter point, thereby taking the corresponding steps into account to exchange Contracts tied to the outcome of future Fed meetings.
However, calls for the Fed to pause completely for the remainder of 2024 are divisive, to say the least. Many investors view the Fed’s latest interest rate cut as a step toward normalizing policy in the face of easing inflation after a round of aggressive tightening pushed benchmark borrowing costs to a two-decade high.
However, it is an idea that Ian Lyngen is currently considering. While the head of U.S. interest rate strategy at BMO Capital Markets is sticking to his forecast of a quarter-point cut in November, he expects a range of employment and inflation data to determine the Fed’s policy path ahead of its Nov. 7 meeting become. If the labor market report for October is comparatively strong and inflation proves stubborn, US central bankers will probably refrain from cutting interest rates for the time being, according to Lyngen.
“If anything, the jobs update suggests the Fed will reconsider cuts at all in November — although a pause is not our base case,” he wrote in a note to clients. “In an effort to be intellectually honest, it’s worth thinking briefly about what it would take for the Fed to pause next month.”
Critics of the Fed’s policy change say the market has already priced in too many interest rate cuts. The risk, according to Yardeni, is that further easing will fuel investor euphoria and set the stage for a painful market event.
“Any further rate cuts would increase the likelihood of a 1990s-style stock market collapse,” he said. In this episode, the S&P 500 lost more than a third of its value from peak to trough.