Taps Coogan – September 12th, 2022

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Dr. Ed Yardeni, creator of the highly informative website Yardeni Research and author of ‘In Praise of Profits,’ recently spoke with CNBC to reiterate his view that inflation will drop quicker than expected and that we’ve already seen both the market highs and lows for the year.

 

Some excerpts from Ed Yardeni:

“We have an economy that is growing very slowly. There is sort of a rolling recession that’s hitting different sectors at different times. Right now obviously the housing sector is suffering quite a bit. Some goods producers are seeing that there’s been a shift by consumers away from goods to services… I don’t think we’re going to have a traditional recession that’s caused by an economy wide credit crunch.”

“I’m banking on the Fed being data dependent and…, especially on September 13th, I’m counting on a really good number of the CPI. We know that gasoline prices came down tremendously in August following a big drop in July. Used car prices are coming down… I think the fundamentals are going to start improving. Some of the inflation was supply chain disruption related and I think there is more and more evidence that that is behind us… It think demand is slowing, it’s certainly pivoting away from good to services and that should also help to cool things off.”

“I hope the Fed goes for 100 basis points at their next meeting. Just get it over with… Let’s get to 3.5%. Markets are already there… The credit markets have already tightened and done most of the work for the Fed…”

“Normal interest rates should be very welcome as far as I am concerned. There is no reason why we shouldn’t be able to live with interest rates around 3%. We’ve done it before and we’ll do it again.”

As I’ve noted before, while I agree with Dr. Yardeni’s view that inflation is likely going to drop fairly quickly from here on out, I don’t understand why he sees the Fed continuing to raise rates and doing $90 billion a month of QT against the backdrop of a rapidly slowing economy as neutral-to-bullish for markets. 

Sure the Fed may pause (on rates but not QT) in the next few months and sure the economy used to be fine with 3% interest rates, but the economy was very different back then and financial markets were smaller. 

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