The quarter-percentage-point cut the Federal Reserve is widely anticipated to deliver this week could be a bad idea, according to Ed Yardeni, president of Yardeni Research. “The last word we got from Fed Chair Jerome Powell was the economy is strong and we don’t need to rush to lower interest rates. If that’s the case, then why would you do something on Wednesday?” Yardeni asked on CNBC’s ” Squawk Box ” on Monday morning. Fed funds futures predict a 99% chance the U.S. central bank will cut interest rates by another quarter-percentage point this week, and less than a 1% probability of rates remaining at their current levels. While the consensus expects the rate cut to come down, Yardeni said recent strong economic data, backed up by an increasing GDP and a robust labor market, and the rally in stocks, gold and bitcoin — all recently hitting all-time highs — suggest it might not be the best decision. He noted that inflation remains sticky above the Fed’s 2% target rate . While the Fed has indicated it may pause its rate-cutting cycle in January, Yardeni believes this action may come too little, too late. Stocks are likely to face some selling pressure next month from investors rebalancing their portfolios at the start of the new year or cashing in after “tremendous” capital gains, he said. “Everything, to me, suggests that interest rates are just about where they should be,” Yardeni added. By reducing rates now, the U.S. central bank risks a market melt up that could lead to a “wicked correction.”
Ed Yardeni thinks Fed shouldn’t cut this week because it risks market bubble
