Quote from: Relonage on December 17, 2024, 07:36:55 AM

Wall Street strategist and president of Yardeni Research, Ed Yardeni, argues that the Federal Reserve’s anticipated 25 basis point rate cut this week could be a mistake.

Yardeni questioned the need for a rate cut, referencing a recent statement from Fed Chair Jerome Powell: "The economy is strong, and we don’t need to rush to lower rates." Yardeni pointed out the inconsistency in cutting rates if the economy is performing well.

Market Expectations vs. Economic Reality
While federal funds futures are predicting a 99% chance of a 25 basis point rate cut this week, Yardeni believes that continuing with rate cuts is not the right move given the current economic data. He highlighted strong GDP growth, a resilient labor market, and historical highs in stocks, gold, and Bitcoin as indicators that the economy is on a solid footing.

Inflation Concerns
Yardeni also emphasized that inflation remains above the Fed’s 2% target. While the Fed may pause rate cuts in January, Yardeni feels this action might be too late. He has previously advocated for the Fed to maintain rates at the upcoming FOMC meeting and reassess the economic landscape.

The Potential Risk of Lowering Rates
Yardeni warns that reducing rates now could lead to a market bubble, potentially triggering a "vicious correction." He sees current interest rates as being at appropriate levels, noting that lowering them further might encourage excessive market optimism, which could end badly.

What’s Your Take?
Do you think the Fed should hold off on rate cuts, or is there a need for action given the economic slowdown risks? Could a rate cut lead to a market bubble, or is it necessary to stimulate growth in the current economic climate? Let’s discuss!

People got too comfortable for a decade from 2010 to 2020 with low interest rates, around 1% and they started to think that was a normal rate - but it's far from it. He is right in a way, if the economy is booming with interest rates as high as they are, why not just leave them in place so people don't fall back into offering out dirt cheap credit? It also gives you much more space to move in the event of an inevitable crisis and recession, because that is when you really need to be able to drop rates. We're in a minor correction just now, but the economy is humming along nicely. Maybe this rate cut was acceptable, but they could slow down on the next few and spread them out a bit more if they insist on doing them.