Fed likely to hold steady amid economic strength, dollar remains solid, says Ed Yardeni

The US Federal Reserve appears poised to maintain its current policy stance, with no immediate plans for further rate cuts. This approach is expected to keep the dollar strong, driven by robust inflows into US capital markets and competitive bond yields, according to Ed Yardeni, President of Yardeni Research.

Fed Governor Christopher Waller’s recent comments about inflation nearing the desired level fueled market optimism, yet Yardeni dismissed the likelihood of additional rate cuts in the near term.

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“We are continuing to see a tremendous amount of inflows into our capital markets, into our stock market and our bond market,” he said, citing attractive bond yields compared to international markets. While UK bonds may offer slightly higher returns, they carry more risk, reinforcing the dollar’s solid position.

James Knightley, Chief International Economist at ING, concurred with Yardeni’s assessment of the dollar’s strength

. He highlighted geopolitical uncertainties and contrasted the Fed’s measured approach with that of other central banks, such as the European Central Bank (ECB) and the Bank of England, which are in ‘race-cutting mode’.

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Knightley outlined his expectations for three Fed rate cuts this year but suggested they will likely occur later than anticipated. “The Fed is in no hurry,” he stated.

Yardeni maintained an optimistic outlook for US equity markets, projecting the S&P500 to reach 7000 by the end of 2025.

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For the full interview, watch the accompanying video

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