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And stocks will still climb even higher. Ed Yardeni is the president of Yardeni Research joins us now. It's good to see you. You don't shy away from controversial takes. Some might find this to be just that. Why do you think this market can go higher even if the Fed does little? Well, I think that if the Fed does cut rates, we'll have to watch what the bond market does cuz last year when the Fed cut the Fed funds rate by 100 basis points, the the bond yield went up by 100 basis points.
Uh I think much will depend on um you know, the the uh ongoing data here. We do do still get initial unemployment claims. We got retail sales numbers today which are a little bit on the weak side and um the PPI was not too hot. So, I'm I'm not committed uh you know, to uh this notion that the Fed isn't going to cut.
I mean, I I go with uh with with the market's perceptions right now. And so, I I wouldn't say that it's it's not going to happen. Uh but I don't think it needs to happen for the market to go higher cuz earnings have been phenomenally strong first, second, and third quarters of this year. Analysts expected single-digit low single-digit increases in earnings.
They came in at 10 to 15%. But you don't want the Fed to make a mistake. Even if all of that is correct. Right? I mean, you don't want them to make a mistake. The unemployment rate is up. That's got some people nervous. If they wait too long, they get way behind the curve. That's a mistake and the market would pay for that.
Well, I I think you're you're right about that and that's an apparently increasingly the perception that the Fed and increasingly perception of the market. Um I think the labor market isn't necess- has problems that aren't necessarily going to be solved by lowering interest rates. Uh the idea of lowering interest rates is to stimulate demand, uh economic demand for goods and services that then boost the demand for labor.
The problem with that thesis right now is GDP looks like it's growing around 4% in the second and third quarters. Uh demand is very strong and yet the labor market is weak for a lot of reasons that uh probably defy any solution uh from from the Fed. A lot of it has to do with the uh retiring baby boomers, a skills mismatch, uh a lot of inexperienced workers.
And I think companies are going full full bore increasing productivity. That's why GDP's rising faster than uh payroll employment. Yeah, but I'm I mean, some would say, "Yeah, well, imagine what what would happen to housing and how that would be freed up pretty dramatically if the Fed was able to to cut rates more than one time." It's been all but a you know, a non-player.
It's been a non-starter. Correct. Well, uh same story was told at the end of last year, right? The Fed cut interest rates and bond yields and mortgage rates stayed up. Uh maybe this time around it'll be different. Uh you know, inflation is still stuck around 3%. It's not at 2% and it's not clear whether the bond market is going to give it a pass and say, "All right, we're going to get down to 2%." Uh but uh I mean, you're making a good point.
I Clearly, everybody's swung to the idea that uh what's the big deal if they lower rates? You reduce the risk of uh uh of things getting weaker. And if inflation uh remains persistent, then you raise rates. I think that's kind of the mentality of the Fed right now. I mean, it's not like a quarter point's going to do much of anything except except
practically speaking, maybe not. But except it it helps with the narrative that the Fed's on the case. The market can at least take some comfort with the fact that the Fed is less likely to make a potential mistake Sure. if they do it. Yeah, my main concern about lowering interest rates when the economy seems to be living with the current level of interest rates.
Broadly speaking, uh we still have rolling recessions in in in places. But my main concern is a melt-up in the stock market. And you know, uh that was less of a concern last last week. Uh and now, you know, how quickly things can change. Now, suddenly all this talk about the Fed put being back uh is driving the market uh back up again, which is fine with me. But I just don't want to see this turn into a a melt-up melt-down situation.
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