The economist added that Fed Chair Jerome Powell could be right in his assertion that the impact of President Donald Trump’s tariffs could be temporary.
Economist Ed Yardeni, founder of Yardeni Research, on Monday said that it would be misguided of the Federal Reserve to cut interest rates by 25 basis points in September, as inflation is persisting above the central bank’s 2% target.
In an interview on CNBC, Yardeni said the Fed needs to maintain its credibility on the inflation front. “What tariffs have done is keep the inflation from coming down to 2%. Inflation now seems to be stuck more around like 3%,” he said, but added that Fed Chair Jerome Powell could be right in his assertion that the impact of President Donald Trump’s tariffs could be temporary.
However, Yardeni expressed his concerns about President Trump’s tariffs not being a one-time affair. “I think a lot of people expected that the tariff effect would be sort of a one-shot deal. The problem is, tariffs are not a one-shot deal,” he added, stating that the Trump administration is considering slapping tariffs on furniture. “It could be a one-shot deal, but it lasts several months,” he quipped, highlighting that tariffs are evolving and the administration is tweaking the policy over time.
Yardeni’s comments come in the backdrop of Powell’s highly anticipated Jackson Hole speech, which raised hopes of an interest rate cut in September–the Fed chair said the current economic conditions “may warrant” careful rate cuts from the central bank. This sent the Dow Jones surging to a record high during intraday trade on Friday.
Powell underscored that while the U.S. economy has shown resilience, downside risks are on the rise. “This unusual situation suggests that downside risks to employment are rising. If those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment,” he added.
Data from the CME FedWatch tool now points to an 83.3% probability of the Fed cutting interest rates by 25 basis points in September.
The benchmark 10-year Treasury yields edged up on Monday morning to 4.277%.
Meanwhile, U.S. equities edged lower in Monday’s pre-market trade. At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was down 0.22%, while the Invesco QQQ Trust (QQQ) declined 0.26%. Retail sentiment around the S&P 500 ETF on Stocktwits was in the ‘bullish’ territory.
The iShares 7-10 Year Treasury Bond ETF (IEF) was down 0.11% at the time of writing.
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