The Federal Reserve may need to stop cutting interest rates to keep the dollar strong, said Ed Yardeni, president of Yardeni Research, which has been positive on the dollar, noting the U.S. economy is solid.
He said that a few months ago, the dollar weakened as the market expected the Federal Reserve to cut interest rates several times, and Yardeni believed that this would be a mistake. He added that the performance of the U.S. Treasury market and the dollar both support this view. He believes that by stopping or reducing interest rate cuts, the Fed will help maintain the strength of the dollar.
A stronger dollar typically leads to weaker foreign currencies, including the yen and the euro, Yardeni explained. He noted that when tariffs, like those implemented by former President Donald Trump during his first term, depress global economic activity, they can depress commodity prices, weakening the currencies of commodity exporters such as Canada, Australia, Brazil and Indonesia.
Meanwhile, Yardeni described Europe's economic outlook as rather disappointing and noted Japan's hesitation to raise interest rates. With the Federal Reserve likely to slow the pace of rate cuts, Yardeni expects the dollar could continue to rise.
Regarding emerging markets, Yardeni said Trump's return to the presidency would bring a different global environment than the Biden administration or Trump's first term.
Yardeni speculated that Trump could impose a 10% tariff on all imports, and possibly as high as 60% on Chinese goods, which could slow global economic growth. He noted that while American consumers would bear these higher costs, the increased tariffs could reduce demand for overseas imports, indirectly affecting international trade and economies that rely on exports to the United States.
On Monday, the veteran strategist reiterated his forecast for the S&P 500 to reach 10,000 by the late 2020s (2030), a 66% gain from current levels. He also raised his year-end forecast for 2024 to 6,100, implying an additional 1.8% upside.
He added that market optimism could grow further if the Russia-Ukraine and Middle East conflicts are resolved sooner than initially expected.
However, Yardeni also warned that Wall Street's optimism and the stretched valuations of some large-cap stocks could set the stage for a decline if stocks rise too high to rise quickly.
Article forwarded from: Jinshi Data
