Market veteran Ed Yardeni said in an interview on Tuesday that if Federal Reserve policymakers choose to ease monetary policy at the July or September meeting, it could cause the S&P 500 to soar 13% to 6,000 points by the end of this year.
This may look great for investors, but Yardeni warned that a rise of this magnitude is actually detrimental to the health of the stock market, given that the market is already overvalued.
Yardeni has warned in the past that surges are often followed by crashes, meaning the market rises too quickly and then falls sharply.
Yardeni had predicted the S&P 500 would reach 5,400 by the end of 2024. But the stock market is now approaching that level.
He said: The bull market continues to exceed my predictions.
Yardeni called the summer rate cut a mistake and believed it was the biggest risk facing the market right now.
My concern is that if the Fed does start cutting interest rates, it could trigger a surge. That would be a problem for me.
Federal Reserve policymakers face a delicate balance when deciding the path of monetary policy.
High interest rates risk pushing the economy into recession. But cutting interest rates too quickly could rekindle inflation, which would hit U.S. consumers hard.
Fed officials have said they want to see more evidence that inflation is falling toward their 2% target before considering cutting interest rates.
Yardeni said that the current interest rate level is the highest since 2001, but economic growth has remained strong so far, which means that the economy can withstand restrictive monetary policies.
He added: \”I think it makes more sense for the Fed to provide such guidance: They are not yet sure whether they have successfully suppressed inflation. And not only are they in no rush to act, they don\’t even think interest rates must be lowered.\”
My point is this. The Fed has normalized interest rates.
Interest rates should stay at this level now.
Overall, investors do not expect interest rates to fall before September.
According to CME Group\’s Fed Tools, market pricing shows that the probability of keeping interest rates unchanged at the next policy meeting in June is 92%. The probability of only cutting interest rates once or twice by the end of the year is 66%.
Regarding the Fed’s interest rate cut, the market should be cautious in making wishes!
Market veteran Ed Yardeni said in an interview on Tuesday that if Federal Reserve policymakers choose to ease monetary policy at the July or September meeting, it could send the S&P 500 index soaring 13% to 6,000 points by the end of the year.
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