According to Ed Yardeni, a senior figure on Wall Street, the Fed's monetary easing action in 2024 may have already ended, as last Friday's strong non-farm payroll report highlighted the resilience of the world's largest economy.

Yardeni stated that with the rebound in oil prices and China seeking to stimulate the economy, further policy easing by the Fed could potentially trigger inflation. He is the founder of Yardeni Research Inc., known for creating the famous 'Fed Model' and 'bond vigilante' concepts.

This market forecaster stated that the Fed cutting rates by 50 basis points in September "wasn't necessary", as this measure is usually reserved for addressing economic downturns or market crashes, but in reality, the USA's economy is currently thriving,$S&P 500 Index (.SPX.US)$approaching record highs.

"They don't need to do more." Yardeni wrote in an email responding to questions. "I think a few Fed officials regret cutting rates so much."

Yardeni is not the only one holding such views. Last Friday, former U.S. Treasury Secretary Larry Summers also stated that the Fed's decision to cut rates by 50 basis points last month was 'a mistake,' as new data showed that last month's job growth in the U.S. exceeded all expectations.

"In hindsight, the 50 basis point rate cut in September was a mistake, although not a major one." Summers said. "The non-farm payroll report confirms our suspicions of being in a high-neutral rate environment, responsible monetary policy needs to exercise caution in rate cuts," Summers added.

The latest non-farm payroll report also led economists at Bank of America and JPMorgan to abandon their calls for larger rate cuts. They have reduced their forecast for the Fed's rate cut in November from 50 basis points to 25 basis points, consistent with changes in futures contracts related to the outcomes of future Fed meetings.

JPMorgan's chief US economist Michael Feroli and Bank of America economist Aditya Bhave both pointed out that last Friday's non-farm payroll report was the driving force behind their expectations for the Fed's easing path. Given the Fed's 50 basis point rate cut in September, they believe that a stable job market is the reason for the Fed to take a more cautious approach.

"The non-farm report should also make the Fed's job easier," Feroli wrote in a memo. A "quite significant" unexpected situation needs to occur before the next Fed meeting, including key readings on inflation data this week and another employment report in early November, to steer decision-makers away from the "gradual rate hike" path.

Bank of America's Bhave stated that the data since the last FOMC rate announcement has been "exceptionally strong," implying that there is no need for another 50 basis point rate cut.

Nevertheless, demanding the Fed to completely halt actions for the remaining time in 2024 can be said to be non-consensus. Many investors view the Fed's latest rate cut as a step towards policy normalization.

As BMO Capital Markets' head of US rate strategy, Ian Lyngen still maintains his forecast of a 25 basis point rate cut in November. He believes that a series of data including employment and inflation will determine the Fed's policy trajectory before the November 7 meeting. He mentioned that if the October employment report shows relative strength and inflation proves to be ongoing, the Fed may temporarily avoid a rate cut.

"If there are any changes, the latest employment report suggests that the Fed may reconsider whether to cut rates in November, although pausing rate cuts is not our base expectation," he wrote in a note to clients. "As we strive to be rational and honest, it is necessary for us to briefly consider what conditions are needed for the Fed to pause rate cuts next month."

Another heavyweight, billionaire investor Stanley Druckenmiller, expressed concern that the Fed has already run into problems with future rate cuts. "I hope the Fed won't be trapped by forward guidance like in 2021," Druckenmiller said after the latest non-farm report was released last Friday. "GDP is above trend, corporate profits are strong, stock market hits record highs, credit is very tight, gold prices hit new highs. Where is the restraint?" He further emphasized warnings from other Wall Street figures that the market needs to adjust its expectations for the pace and extent of Fed easing.

Druckenmiller expressed doubt about whether the Fed should choose a 50 basis point rate cut at the recent meeting. BlackRock Group CEO Larry Fink also stated earlier last week that the market is overly optimistic about Fed's accommodative policies, citing strong US economic growth.

For those who criticize the Fed's policy shift, the market may have already overpriced too many rate cuts. According to Yardeni, the risk is that additional loose policies will fuel investors' euphoria, paving the way for painful market events.

"Any further rate cuts would increase the likelihood of a scenario similar to the soaring stock market of the 1990s," he said. Back then, the S&P 500 index dropped by over a third from its peak to its low point.

Editor/rice