The Fed will only cut rates once this year because the US economy is too strong, market vet says

• The Federal Reserve is likely to cut interest rates only once this year, according to Ed Yardeni.

• The US economist dismissed market bets on ambitious interest rate cuts because the US economy is so strong.

• Yardeni predicted that inflation is on track to meet the Fed’s target, but the labor market will pick up again.

Investors expecting a sharp rate cut as inflation continues to slow this summer may be disappointed because the U.S. economy appears too strong to warrant significant monetary policy easing by the Federal Reserve.

That’s according to Ed Yardeni, president of Yardeni Research, a Wall Street veteran who is calling for just one rate cut by the central bank this year. His forecast is at odds with what most investors are expecting, with markets betting on a 100-125 basis point rate cut by the end of the year, according to CME FedWatch Tool.

“I have been against cutting rates, but I am a reasonable person. If the Fed signals that they are going to cut rates regardless of what I think, that is what will happen, but I think it is a quarter of a percentage point, which is something that will only happen once this year,” he said. cnbc In an interview on Wednesday.

Markets have begun to increase their expectations for a rate cut by the Federal Reserve after taking into account Jobs report surprisingly weak In July, as the unemployment rate hit its highest level since the pandemic. Then recession fears rose, causing brutal stock sell-off.

However, the U.S. economy overall appears to be on solid footing, making sharp interest rate cuts unnecessary, Yardeni said.

Yardeni expects next month’s jobs report to be stronger, in line with other commentators who have said July’s data may have been distorted by severe weather events.

Meanwhile, Yardeni said inflation is on track to fall to the Fed’s 2% target by year-end. Consumer prices continued to slow last month to 2.9%, below the expected 3% annual increase.

Finally, GDP growth was positive and appears to be accelerating again after a decline in the first quarter. The economy expanded by 2.8% in the last quarter, according to Advanced GDP Estimates From the Ministry of Commerce.

However, expectations for a recession remain mixed on Wall Street, with some forecasters arguing that markets have yet to see the full impact of higher interest rates. Federal Reserve Bank of New York The International Monetary Fund sees a 56% chance that the economy will enter a recession by July next year.

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