Ed Yardeni, president of Yardeni Research and a seasoned Wall Street expert, anticipates just one rate cut from the Federal Reserve this year. His outlook contrasts sharply with the expectations of most investors, who are betting on 100-125 basis points of cuts by year-end, as indicated by the CME FedWatch tool.
"I’ve been against a rate cut, but I’m a pragmatic person. If the Fed decides to cut despite my views, then so be it. However, I believe it will be a quarter-point cut, and it will be a one-and-done for the year," Yardeni said in an interview with CNBC on Wednesday.
Investor expectations for Fed rate cuts surged following a surprisingly weak July jobs report, which showed unemployment rising to its highest level since the pandemic. This fueled recession fears and led to a significant sell-off in stocks.
However, Yardeni believes that the US economy remains fundamentally strong, rendering steep rate cuts unnecessary. He predicts that next month’s jobs report will be stronger, aligning with other experts who suggest that July's data may have been skewed by severe weather events.
Yardeni also expects inflation to return to the Fed’s 2% target by the end of the year. Consumer prices continued to ease last month, with a 2.9% increase, slightly below the anticipated 3% year-over-year rise.
Moreover, GDP growth remains positive and appears to be picking up after a dip in the first quarter. The economy expanded by 2.8% last quarter, according to advanced GDP estimates from the Commerce Department.
Despite these positive indicators, the outlook for a recession remains uncertain on Wall Street. Some analysts argue that the full impact of higher interest rates has yet to be felt. The New York Fed estimates a 56% chance that the economy could enter a downturn by July of next year.
