Wall Street tycoon Adrian: Employment data dampens rate cut enthusiasm, Fed to pause monetary easing until 2024

According to the financial news app Zhitong Finance, Ed Yardeni, founder of Yardeni Research and renowned for the "Fed Model" and "Bond Vigilante," mentioned that given the strong job report released on Friday highlighting the resilience of the U.S. economy, the Fed's loose monetary policy until 2024 may have come to an end. This Wall Street veteran stated that further easing policies could trigger inflation amidst the rebound in oil prices and China's efforts to kickstart its economy.

He expressed that with the U.S. economy on the rise and the S&P 500 hovering near historical highs, the Fed's decision to cut rates by 50 basis points in September was "unnecessary." Rate cuts are typically measures taken to address economic downturns or market collapses.

In an email response to questions, Yardeni wrote, "They don't need to do more, I guess some Fed officials regret doing so."

U.S. stocks rose on Friday, with U.S. bond yields and the dollar surging, following government data showing the largest increase in non-farm payrolls in six months. The report also revised up recruitment data for the previous two months and indicated a decrease in the unemployment rate.

Following the better-than-expected job growth data, Yardeni is the latest to comment on Fed policy. Earlier on Friday, former Treasury Secretary Summers stated that the Fed's rate cut last month was "a mistake." This news also led economists at Bank of America and JPMorgan to lower their expectations for the Fed's rate cut in November from 50 basis points to 25 basis points, aligning with the trends in futures contracts related to the Fed's upcoming meeting results.

However, it can be said that demanding the Fed to completely halt rate hikes for the remaining time in 2024 is not a consensus view. Many investors view the Fed's rate cut this time as a step towards policy normalization. After a round of aggressive tightening policies pushed benchmark borrowing costs to a 20-year high, inflation has eased somewhat.

This is also an idea being considered by Ian Lyngen, head of U.S. rate strategy at BMO Capital Markets. He sticks to his forecast of a 25 basis point rate cut in November, but believes that a series of employment and inflation data before the November 7 meeting will determine the Fed's policy trajectory. According to Lyngen, if the October job report is relatively strong and inflation proves to be tricky, Fed officials may temporarily avoid a rate cut.

In a report to clients, he wrote, "If there is anything different, the latest employment data suggests that the Fed may reconsider the prudence of cutting rates in November, although pausing the rate cut is not our base prediction." "As we strive to be rational and honest, it is necessary for us to briefly consider what cost the Fed would incur by pausing rate hikes next month."

For critics of the Fed's last rate cut, it can be said that the market has already digested quite a bit of easing. Yardeni believes that the risk lies in further loose policies fueling investors' excitement, laying the groundwork for painful market events He said, "Any further interest rate cuts will increase the possibility of a stock market crash similar to that of the 1990s." During that event, the S&P 500 index fell from its peak to the bottom, with a decline of more than one-third