Let me have your views on the upcoming Jackson Hole Symposium and what commentary Fed Chair Jerome Powell might give, especially on the key points in focus, since Donald Trump once again keeps referring to him as “Jerome Too Late Powell.”
Ed Yardeni: Well, the question will be: what sort of bird will Powell be? Will he be a dove? Will he be a hawk? Or will he be an owl? An owl just sits there and watches—and he’s going to be an owl. He’s going to say, “We are going to be watching the data.” There are two important inflation numbers still to come: the consumption deflator for July, which will be released at the end of this month, and then the August CPI in September, just before the FOMC meeting. And of course, the payroll number will also be released. The inflation numbers are likely to run on the hot side. The payroll employment number is expected to bounce back, and as a result, I am not convinced that the Fed will actually cut rates. I know the markets think so, but I humbly and respectfully disagree.
On this whole “Too Late Powell” debate—what’s your view? Is he too late or is he just on time? Because while the macro picture looks good, inflation remains sticky. For example, services inflation continues to stay above the Fed’s target. So, what do you think could happen at the September Fed meeting? Does it warrant a rate cut just yet?
Ed Yardeni: Well, I think the inflation numbers we’ve seen so far are not at 2%—they’re closer to 3%. And it’s not just tariffs. Services inflation within the CPI, and in the consumption deflator we’ll get later this month, are still relatively hot. They certainly haven’t come back to pre-pandemic levels. Meanwhile, tariffs have indeed had an impact on inflation, clearly visible in durable goods inflation. In the past, if services inflation stayed high, it was offset by deflation in durable goods, keeping overall inflation closer to 2%. This time, services inflation is around 3%, while durable goods—where prices had been falling—are now up 1.2% year-over-year due to tariffs. That doesn’t sound like much, but it’s no longer a significant offset to services inflation, which remains elevated.
What intrigues me is the posturing. For instance, White House Press Secretary Karoline Leavitt said the U.S. President has put tremendous public pressure to bring the Russia-Ukraine war to a close. She mentioned sanctions on India and other actions as well. What do you make of that?
Ed Yardeni: I agree with the point about the unfairness of focusing on India’s purchases of Russian oil. But I also believe we should be squeezing Russia much harder. I’m surprised we haven’t imposed every possible sanction on Russia over the past couple of years—maybe the war would have ended faster. I also question whether Putin even wants a settlement at this point. If a negotiated settlement happens now, Russia could walk away with a “sweet deal,” which it certainly doesn’t deserve. The U.S. may still need to tighten sanctions further to get Russia’s attention.
Given the rally in U.S. markets, do you question the sustainability of the move? Because while current inflation data looks manageable, tariffs might hurt the economy going forward. Markets are anticipating a rate cut, but what’s your outlook for U.S. markets from here?
Ed Yardeni: In the short term—through the rest of August into September—we’ll probably see the market trade lower. We may already be seeing some profit-taking today, especially in the AI trade, which clearly has bubble-like aspects. Even industry insiders admit too much money is being spent on expanding capacity without guarantees of good returns. So, we could see significant profit-taking in technology stocks, particularly in AI, which might continue into September, historically a weak month for markets. By October, however, conditions could set up for a buying opportunity, leading to a strong year-end rally—a fairly typical seasonal pattern. By year-end, I see the S&P 500 finishing at 6600. But I would also like to see the market broaden out. Every now and then it teases us by suggesting it might, but then proves otherwise.