Ed Yardeni said that the Federal Reserve will raise interest rates just one more time in November.
Market consensus is for a 75 basis point rate hike in November and a 50 basis point rate hike in December. The Fed is expected to raise rates by another 25 basis points early in the next decade, with the Fed fund rate sitting at 4.50%. The rate at which the Fed funds are deposited is between 3 and 2.5%.
An overly aggressive Fed tightening policy and a surging US dollar could break financial markets. Year-to-date, the US Dollar Index has surged more than 15% as the Federal Reserve tightens its monetary policy.
I believe it's already broken. The dollar is going up. Financial crises have been caused by a soaring dollar in the past. Yardeni said that the tight monetary policy here is having a huge impact on the rest of the world.
Three outsized 75 basis point rate hikes, a 50 basis point rate hike, and a 25 basis point rate hike have been included in the Fed's tight monetary policy. A reduction of the Fed's balance sheet has begun, as it reduces its holdings of Treasury and mortgage bonds.
When you have a soaring dollar and a Fed funds rate, it's a mistake to just focus on the Fed funds rate as a part of the monetary tightening cycle. Yardeni said the developments are very restrictive.
Financial markets will be unstable if the Fed is too tight.
Yardeni thinks there will be one more rate hike in November and it will be because of the financial stability issue.
One Fed governor is talking about the risk. At the end of the day, the Fed's mandates are financial instability and Lael Brainard indicated that she was very concerned about that in her speech on Friday.
Yardeni is still optimistic about the stock market in the long-term even though he admits that there is a chance of a recession in Europe, China and the rest of the world. The US is an attractive place for foreign investors to park their money.
The United States is the safest place in the world. Money continues to pour into the US credit markets and I think you're going to see money come into the equity markets on a global basis.
Earnings are going sideways. Yardeni thinks that we are already in a recession.