Substantial interest rate cuts are just "nonsense"? Wall Street veteran: The Fed will only cut interest rates once this year!
Wall Street veteran Ed Yardeni predicts that the Federal Reserve will only cut interest rates once this year, despite market expectations of a 100-125 basis point cut. He believes that the solid foundation of the U.S. economy is not sufficient to support a significant rate cut. Despite the soft July non-farm payroll report, he expects the next report to be stronger, with inflation expected to fall to 2% by the end of the year. Meanwhile, the GDP growth rate for the second quarter was 2.8%, indicating an acceleration in the economy. The New York Fed predicts a 56% chance of a recession by July next year
This summer, as inflation continues to cool down, investors expect the Federal Reserve to cut interest rates significantly, but this expectation may fall short because the U.S. economy appears too strong to support a significant easing of Fed policy.
This is the view of Ed Yardeni, President of Yardeni Research and a veteran on Wall Street, who predicts that the Fed will only cut rates once this year. His prediction goes against the expectations of most investors. According to the Chicago Mercantile Exchange's FedWatch tool, the market expects a rate cut of 100-125 basis points by the end of the year.
In an interview on Wednesday, he said, "I have always been against rate cuts, I am a reasonable person. If the Fed suggests that they will cut rates regardless, then market expectations will occur. But I believe the Fed will only cut rates by 25 basis points, and only once this year."
In July, the U.S. released an unexpectedly weak non-farm payrolls report, with the unemployment rate rising to its highest level since the COVID-19 pandemic, leading to increased expectations of a Fed rate cut in the market. Subsequently, concerns about an economic recession intensified, leading to a sharp drop in U.S. stocks.
However, Yardeni stated that overall, the U.S. economy appears fundamentally solid, and there is no need for a significant rate cut.
Yardeni predicts that the non-farm payrolls report next month will definitely be stronger, echoing the views of other analysts who believe that the July non-farm data may have been affected by adverse weather events.
At the same time, Yardeni stated that inflation is expected to fall to the Fed's target level of 2% by the end of the year. Last month, the year-on-year growth rate of the U.S. CPI continued to cool to 2.9%, below the expected 3%.
Finally, the U.S. GDP growth rate in the second quarter was positive, seemingly picking up again after a slowdown in the first quarter. According to the initial estimate of GDP by the U.S. Department of Commerce, the U.S. economy grew by 2.8% in the last quarter.
Nevertheless, Wall Street's views on the prospect of an economic recession remain divided, with some forecasters believing that the market has not fully felt the impact of rate hikes. The New York Fed estimates that there is a 56% chance of a U.S. economic recession by July next year.