Fed to cut rates only once this year because US economy is too strong, market expert says

• According to Ed Yardeni, the Fed is only expected to cut interest rates once this year.

• The market expert dismissed market bets on ambitious rate cuts, saying the U.S. economy is too strong.

• Inflation is on track to reach the Fed’s target, but the labor market will warm up again, Yardeni predicts.

Investors expecting sharp rate cuts as inflation continues to slow this summer may be disappointed as the U.S. economy appears too strong to warrant significant easing of monetary policy by the Fed.

That’s according to Ed Yardeni, president of Yardeni Research and a Wall Street veteran who calls for just one rate cut from the central bank this year. His prediction is contrary to what most investors are expecting, with markets betting on cuts of 100 to 125 basis points by year’s end, according to the report. CME FedWatch Tool.

“I’m opposed to a rate cut, but I’m a reasonable person. If the Fed signals that they’re going to cut rates, whatever I think, that’s what’s going to happen, but I think it’s a quarter point and it’s a one-time decision for the year,” he said. CNBC in an interview on Wednesday.

Markets have started to raise their expectations for Fed rate cuts after factoring in a Jobs report surprisingly weak in July, when unemployment hit its highest level since the pandemic. Fears of a recession then soared, causing a sharp drop in shares.

But overall, the U.S. economy appears to be on solid footing, making drastic rate cuts unnecessary, Yardeni said.

Next month’s jobs report should be stronger, Yardeni predicts, echoing other commentators who have said July’s data may have been skewed by severe weather events.

At the same time, inflation is expected to fall back toward the Fed’s 2% target by year-end, Yardeni said. Consumer prices continued to fall last month to 2.9%, below the expected 3% annual increase.

Finally, GDP growth is positive and appears to be accelerating again after falling in the first quarter. The economy grew by 2.8% in the last quarter, according to advanced GDP estimates from the Ministry of Commerce.

However, the outlook for a recession remains mixed on Wall Street, with some forecasters saying markets have yet to feel the full impact of rising interest rates. New York Federal Reserve estimates that there is a 56% chance that the economy will enter a recession by next July.

Read the original article on Business Insider