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Investing.com -- Yardeni Research warned that upcoming U.S. inflation readings could complicate expectations for monetary easing, even as markets are pricing in a Federal Reserve rate cut next week.
In its latest note, Yardeni Research said that “next week’s PPI and CPI inflation rates for August might be hotter than expected.”
While a weaker-than-anticipated jobs report has pushed futures to fully price in a 25 basis-point cut on September 17, Yardeni argued that the central bank is at risk of acting prematurely.
“Stimulating an economy that doesn’t need stimulation won’t create more workers to address the undersupply that’s constraining the demand for labor,” it said.
The firm emphasised that strong productivity growth and resilient consumer spending support its “Roaring 2020s economic scenario,” which suggests current policy settings are sufficient.
Q2 productivity growth was revised up to 3.3% annualised, with real wages also advancing.
Yardeni noted that these dynamics point to a shortage of workers rather than weak demand, meaning further monetary easing “might boost wage inflation” while fuelling financial instability through a potential stock market “melt-up.”
Despite the weak employment report, Yardeni highlighted continued strength in consumer indicators.
Still, the firm reiterated concerns that cutting rates could destabilise markets. “Our concern is that lowering interest rates will lead to financial instability, including a meltup/meltdown in the stock market,” the note said.
Yardeni is keeping its year-end 2025 S&P 500 target at 6,600, but said the odds of a meltup would rise if the Fed signals more cuts beyond September.