Wall Street Strategist: Fed Should Hold Off on Rate Cuts, Risking Market Bubble

[Relonage]

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!

[icalical]

GDP growth is solid, the job market is still tough, and inflation is still above the 2% target, coming in at 2.7% in November, so I think Ed Yardeni has a good point. The rate cut in this environment would certainly appear contradictory, and the risk of overheating markets-a bubble that will correct painfully later, as Yardeni warns-is there. That's a legitimate concern, with stocks, gold, and Bitcoin all at highs and reflecting very strong market optimism.

On the other hand, a small rate cut may help to sustain economic growth and ward off slowdown risks. The Fed probably seeks a balance, trying to keep rates "neutral" and neither over-stimulating nor stalling the economy. While one should appreciate the caution of Yardeni on market bubbles, the small cut may provide more room for maneuvering in case something goes wrong, taking into consideration that inflation pressures are still elevated. It's a tough call, but some sort of action may help avoid larger problems later on.

[davis196]

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.

I don't understand why Yardeni uses the historical high of the Bitcoin price as an indicator that the US economy is in a good shape. The BTC price is supposed to be influenced by global factors, not just regional factors, that are coming from the USA. Bitcoin is still a volatile and speculative asset and it isn't closely connected to the US economy and the US job market. I agree with Yardeni's point about the Federal Reserve not cutting the interest rates, but as a Bitcoiner, I want the interest rates in the USA to be as low as possible, which will help pumping the Bitcoin price to higher levels.

[diamondsurfer]

Rate cuts are used as a last resort, the anticipation of cuts, we already feel them. It could be priced in depending on the stock. Buying real estate, as a buyer you can buy in any market so interest rates only limit shoppers from of a face value because that's all they know. Interest rate buy downs in down markets, or buying in the off season can create the same effect on your monthly payment with less competition.

[DeathAngel]

Next Fed rate decision is at the FOMC Meeting today at 14:00 ET. It’s is largely predicted that the Fed will again cut rates by 25 basis points. It’ll be the third straight rate cut. Markets will likely react well to this news so good for Bitcoin.
https://www.cnbctv18.com/world/us-fed-meeting-live-updates-jerome-powell-fomc-us-market-gdp-inflation-will-the-us-central-bank-opt-for-a-25-or-50-bps-rate-cut-liveblog-19525554.htm/amp

[beerlover]

Rate cuts are used as a last resort, the anticipation of cuts, we already feel them. It could be priced in depending on the stock. Buying real estate, as a buyer you can buy in any market so interest rates only limit shoppers from of a face value because that's all they know. Interest rate buy downs in down markets, or buying in the off season can create the same effect on your monthly payment with less competition.

Yes true, when the rates are super high, nobody spends money and they all keep their money in savings, because the interest gives them a great return. But, when the interest goes down that means everyone could afford to get a loan, or use their money as well.

The ones with money, will not put it in the bank since interest is low and they will use that for something else, and I also believe that people who do not have any money will end up getting loans as well because they won't have to pay too much of an interest neither. These are all important stuff, we can't consider the situation to be that easy, and for that reason I believe we are going to end up with a good return one way or another, if the interest rates are lower.

[WillyAp]

And in real life spending is the name of the game.
Companies can be fine, but folks are starving.

Hardly anyone can afford kids, there is your indicator that things are not running soooo smooth. 

[Die_empty]

Next Fed rate decision is at the FOMC Meeting today at 14:00 ET. It’s is largely predicted that the Fed will again cut rates by 25 basis points. It’ll be the third straight rate cut. Markets will likely react well to this news so good for Bitcoin.
https://www.cnbctv18.com/world/us-fed-meeting-live-updates-jerome-powell-fomc-us-market-gdp-inflation-will-the-us-central-bank-opt-for-a-25-or-50-bps-rate-cut-liveblog-19525554.htm/amp

As expected the Feds reduced interest rate by 25 basis points. Despite fears that it will increase inflation they went ahead to reduce it believing that the US economy is strong enough to withstand the effect of this move. But I had expected this cut to lead to the price increase of Bitcoin. The price of Bitcoin kept dropping and the Dow Jones Industrial Average, S&P 500, and  Nasdaq all tumbled due to selloffs after the news. I suspect that this slide might be connected to Jerome Powell's statement that January is unpredictable since a new government is coming in. The Federal Reserve chairman signaled that there might be no interest rate cut by the beginning of next year. This statement might have affected the market negatively.

[Fortify]

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.

[avikz]

The current rate cut is purely a political move above anything else! I am not the only one saying this! If you look at the US stock market, it's showing all signs of a crash! When inflation is the matter of concern, a rate cut is a childish move. Even a novice economist will accept that. But unfortunately FED had gone ahead with a 25 bos rate cut and the markets are bleeding.

Under no good concise, this rate cut was necessary. It has only given a temporary relief to the industries with a book full of loans. But with the rising inflation, it won't be good for them in the longer run. Unfortunately, this is a purely political move and makes no sense from economy point of view.