Longtime market bull Edward Yardeni suggests President Donald Trump is manipulating the Federal Reserve into cutting interest rates.
In a recent research note, he wrote that Fed Chairman Jerome Powell is essentially getting “Trumped.” Yardeni contends the president is creating a contentious situation for the Fed by creating uneasiness around U.S. trade policy.
According to the Yardeni Research president, it became very apparent in Powell’s testimony to congressional leaders this week.
“Within a few months of using the word ‘patient,’ suddenly he’s talking about acting as appropriate given the conflict we’re seeing on the trade side,” he told CNBC’s “Trading Nation ” on Thursday. “What was interesting to me about his written comments to Congress is the word ‘trade’ appeared eight times within the context of ‘we’re concerned about uncertainty.'”
Before Powell headed to Capitol Hill, Yardeni was predicting no rate cut in July. Even though he feels the latest economic data does not warrant a cut, he now expects the Fed to ease, for better or worse.
“They’re talking about suddenly wasting ammunition,” he said. “Lowering interest rates here even on an insurance basis really just doesn’t make much sense.”
Yet, the major indexes rallied to record highs on Powell’s comments. The Dow and S&P 500 broke two key levels, 27,000 and 3,000, respectively.
Yardeni, who has an S&P 500 year-end target of 3,100, isn’t denying a cut would boost stocks even higher.
“That’s very bullish for the stock market — even creating the potential for a melt-up in the market,” said Yardeni. “Powell just seems to be ignoring the possibility of creating financial instability by being too easy when it’s really not necessary.”
Yardeni spent decades on Wall Street running investment strategies for firms including Prudential and Deutsche Bank. He’s also a former Federal Reserve Bank of New York economist.
“You know my job really isn’t to criticize Fed policy. It’s to anticipate Fed policy and how that might impact the markets as an investment strategist,” said Yardeni.
Meanwhile, Powell has asserted the Federal Reserve is not driven by White House policy and would not resign even if Trump requested it.