Federal Reserve Likely to Keep Rates Steady Amid Strong US Economy

Ed Yardeni, the president of Yardeni Research, has expressed his belief that the Federal Reserve will maintain current interest rates, citing a robust US economy as the primary reason. In a recent interview, Yardeni emphasized that he does not foresee any easing of monetary policy, attributing this stance to the resilience of the US economy, which is driven by strong household spending and significant capital investments from technology companies.

Yardeni highlighted that the US consumer has shown remarkable resilience over the past three years, despite the Federal Reserve's interest rate hikes. He noted that consumer spending has remained strong even in the face of tariff uncertainties. Additionally, technology capital spending, which now constitutes over 50% of total capital spending, has remained robust, contrary to concerns that uncertainty would dampen investment.

According to Yardeni, the demand for US Treasuries will continue to be robust. He pointed out that the US is the world's largest capital market, and despite its significant debt, there is a strong appetite for US Treasuries. Yardeni explained that even when yields rise, as they did in 2023, reaching levels around 5%, investors still show a strong interest in purchasing them, leading to a subsequent decrease in yields.

Yardeni's analysis suggests that the Federal Reserve is unlikely to cut interest rates in 2025 due to the strong economic fundamentals and the enduring demand for US Treasuries. This perspective underscores the Fed's commitment to maintaining stability in the economy, supported by resilient consumer spending and robust capital investments, particularly in the technology sector.