Investing.com – Last week's strong jobs report has reduced expectations of another huge interest rate cut by the US Federal Reserve this year, and Yardeni Research warns that September's cut may be the last of this year.
“Remember the 'higher for longer' mantra about the outlook for the federal funds rate through the spring? It became 'lower and faster' this summer in response to the economy's rough patch,” analysts at Yardeni Research said in a note dated Oct. 7.
“After Friday's strong jobs report, the consensus could turn toward 'don't rush easing any further' in the fall. We cannot rule out that “higher for longer” will return this winter. “We’ll be in the no-go-and-done camp for the rest of this year.”
In the past, once the Federal Reserve began cutting the federal funds rate, it was followed by a rapid succession of additional rate cuts.
However, the difference this time is that there is no credit crunch, no credit squeeze or recession, Yardeni noted. Instead, the economy continues to grow at a solid pace, around 3.0% year-on-year. Therefore, there is no rush for the Federal Reserve to take easing measures, especially if the economy continues to perform well.
Furthermore, if the new consensus narrative tilts back toward higher interest rates for longer, it will be because the economy continues to perform better than expected, as do earnings.
“If so, that shift should favor SMidCaps compared to SMidCaps because the future earnings of the former benefit more from better economics than the latter,” Yardeni Research.
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