Famed economist Ed Yardeni said earlier this year the Federal Reserve would be “one and done” when it comes to rate cuts—announcing one reduction and leaving it at that.
And in the wake of an unexpected 50-basis-point (bps) cut in September—double the 25 bps widely expected by the Street—Yardeni is now convinced Fed chairman Jerome Powell won’t be lowering any further.
The outlook for the rest of 2024—with meetings set for November and December—is now “none and done,” the president of Yardeni Research told CNBC.
Speaking to Closing Bell yesterday, Yardeni said: “The Fed is always taking top spot when it comes to thinking about the markets, and we’ve been thinking that Powell turned way too dovish back at Jackson Hole and that the 50-bps cut wasn’t really justified.”
The economy has proved to be “resilient,” Yardeni added—and he’s not wrong.
Part of the shift from Powell—and indeed members of the Federal Open Market Committee (FOMC)—was due to a shaky jobs report in early August which sent markets spiraling.
As the unemployment rate had jumped to 4.3% in July, even the more hawkish members of the FOMC signaled they were minding both halves of their dual mandate: bringing inflation down to a target of 2% and maintaining maximum employment.
But in the months since, the data has continued to come up rosy.
Jobs reports are coming back resilient, with yesterday’s CPI report also showing price increases for the 12 months to September 2024 now sit at 2.4%—closing in on the target rate.
And it seems the going is so good that Yardeni wants to see the Fed sit back and watch the economy continue to stabilize.
It’s an idea already being considered by members of the FOMC.
Speaking to the Wall Street Journal in an interview published yesterday, Atlanta Federal Reserve Bank President Raphael Bostic said he was “definitely” open to the idea of skipping a cut in November.
“You know it’s not mission accomplished yet on inflation,” Yardeni added. “We still have some stickiness in some areas of that area.
“I’m predicting none and done for the rest of the year.”
What the markets want
Just because the FOMC insists it isn’t their job to keep the markets—or indeed anyone else—happy, doesn’t mean analysts aren’t putting in their requests.
UBS, for example, suggests the Fed is going to cut at both meetings in November and December.
That being said, in a note published yesterday, Brian Rose, senior U.S. economist, wrote the Fed “remain data dependent and could skip one of these meetings if the data runs strong.”
Likewise a note yesterday from Bank of America seen by Fortune confirms the financial giant is still pricing in a 25 bps cut in November.
Economists Stephen Juneau, Meghan Swiber, and Alex Cohen wrote that while CPI inflation didn’t spike, the data still isn’t firm enough for the Fed to consider holding rates next month.
Yardeni agreed that a consensus view of 25-bps cuts for the remaining two meetings of the year would be good news for stocks.
“The fact of the matter is it wasn’t too long ago when we were worrying about the Fed raising interest rates and then why aren’t they lowering interest rates. And now we’re kind of saying ‘give us more,'” Yardeni added.
“In my scenario rates are pretty comfortable where they are relative to the economy. Earnings do fine and this notion that the interest-rate-sensitive areas of the market—the mid-caps and the small-caps—I’m kinda questioning that.
“They do need lower interest rates and I don’t know that they’re going to get the kind of rate drops that the market is anticipating,” he added.
