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I bring on board Ed Yardeni, president and chief investment strategist at Yardeni Research. Let me start with that, Ed. You've seen You've seen plenty of cycles, right? What does this this US 10-year yield at 4.5% indicate? And what do you make of the AI wave at this point? Are we in a bubble? Are we not?
Well, I'm not too concerned about 4.5%. I've been thinking that we're back to normal in the US bond market. Normal being between 4 and 5%. Uh the abnormality was how low bond yields had gone between the great financial crisis in 2008-2009 through the great virus crisis. Uh so uh we're back to normal, and one of the reasons we've seen some upward pressure on the bond yield in the past few days, of course, is that the new Fed chair, uh Kevin Warsh, has uh turned out in his initial comments to uh be more hawkish than anyone had expected.
Uh he insisted that he and the rest of the uh monetary policy committee, the FOMC, were committed committed uh to keeping uh to bringing about price stability. And he acknowledged that the Fed has missed its target of 2% for the past 5-plus years. And he seems intent on getting to the uh uh down to to 2%.
Of course, the lower oil prices will help get there without the Fed having to raise rates, but the market is expecting one, maybe two rate hikes uh over the next 6 to 12 months. Uh with the rest of the AI trade, um I think we're I think it's it's healthy what's going on here. People are questioning uh the the whole premise of the hype, anyways.
Uh and um I I taking some of the air out of the out of that hype is a good thing. Taking out air is better than bursting the an AI bubble and I don't think that's what we're doing. I think the market is rotating. I think it's broadening to to what I call the impressive 493. But Ed, what is it that you're making off the SpaceX trade now completely unwinding?
All the listing gains are have vanished. And what's that really telling you about the risk on sentiment in the market right now? Well, I'm not too concerned about what's happening with SpaceX. To me, that's just a a realistic reassessment of the challenges SpaceX has ahead of it. The big move to the upside after the IPO for a a few days was based on mostly hype about all the projections about business uh of data centers orbiting around the earth in space about what could be accomplished in manufacturing on the moon.
But that's pie in the sky literally. It's uh it's far off and for now, this is not a company that's actually generating profits. It's still losing money. So I think I think it's a healthy reassessment of that IPO and maybe that'll lead to a more realistic pricing of the IPOs for Anthropic and for Open AI.
How do you look at uh the Fed reacting going forward? Are you have now a solution which is coming in for from West Asia? Do you think the rate hike which is penciled in by the street maybe may may get pushed further uh instead of having coming in in the next uh uh FOMC meet, it may be pushed towards the end of the year.
Well, I've I've been thinking in a the the sort of the a different direction. I've been thinking uh even before Kevin Warsh uh uh came out of the latest FOMC minutes and came out hawkish, I I've been anticipating that the Fed would at the June meeting, which we just had, uh would pivot very easy uh bias towards a tightening bias.
They could have gone neutral, uh but instead they decided to go to for a tightening bias. And we've also been thinking that uh the surprise could be that uh if the data continues to show a strong economy with uh some inflationary pressures resulting from the oil price hike passing through to other areas of the economy, I I will not be surprised if there might actually be an increase in the federal funds rate uh during July, but uh I think I would say over the next 12 months, I really don't expect more than one or two uh rate hikes.
I think the US economy can handle it, but it it will be a challenge for emerging economies like India because uh when the US is tightening, that tends to uh make things more difficult for emerging economies, especially for the their currencies. Interesting. And Sougata, good having you on the show today. Thank you so much for your time as always. Thank you. Okay.
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