Hike rates

Edward Yardeni tells the Fed to ‘just do it’ and hike rates by 50 bps

  • Former Fed economist Edward Yardeni urged the Fed to raise rates at the March FOMC meeting.
  • “Do it,” he told Bloomberg. “Let’s go, let’s do 50 [basis points]the market has already discounted it.”
  • Yardeni also said that “bondage vigilantes” may soon make a “comeback”.

An old


Federal Reserve

According to an economist, the central bank must go further in raising interest rates at next month’s meeting of the Federal Open Market Committee.

“Just do it,” was the advice of former Fed economist Edward Yardeni.

He said the market had already priced in a rate hike in March, particularly after Fed Chairman Jerome Powell said in January that the FOMC was “of a spiritto start raising rates to fight inflation more effectively. Yardeni urged the Fed not just to raise rates, but to launch a bigger hike than many expected.

“Let’s go, let’s do 50 [basis points]the market has already discounted it,” said the veteran strategist Bloomberg Television early Thursday. “Look at the yield on two-year Treasury bills, which tends to be a great indicator for the year ahead of what the market expects the fed funds rate to be.”

The two-year yield approached 1.35% before climbing to almost 1.5% after the inflation data. It was hovering at 1.54% at 1:40 p.m. ET Thursday.

Yardeni, president of Yardeni Research, also said so-called bond vigilantes may soon make a “comeback.” The economist coined the term in the 1980s, which refers to investors who demand higher returns when inflation rises.

“We’re going to find out very soon,” he told Bloomberg. “They should announce that they are done buying securities. This would finally free bond vigilantes to voice their opinion. They are waking up.”

The two-day FOMC meeting will take place on March 15-16.

Estimates released after the December FOMC meeting showed officials are expects to raise interest rates three times in 2022 and three more times next year. Some, like Bank of America, see a huge 11 rate hikes this year and next.

The stock market was rocked in early 2022 by expectations that the Fed would repeatedly hike rates and start shrinking its balance sheet, ending massive central bank support for the US economy during the pandemic.

“Persistent inflation should not be bearish for equities unless and until the Fed is forced to stop it by raising interest rates to levels that cause a


recession

“, said Yardeni in his research piece released Thursday. “Equities offer some protection against inflation since incomes rise with prices.”