Fed’s chance of September rate cut is ‘less than 50%’ – Yardeni Research

[FED, Federal Reserve with interest rate cut concept, small cube block with alphabet building the word CUT next to Federal Reserve emblem on US Dollar banknote]
Nuthawut Somsuk

Ed Yardeni, president of Yardeni Research, believes the Federal Reserve is unlikely to cut interest rates in September, assigning less than a 50% probability to such a move.

“If I had to put my own probability on it, it’s under 50%. I’ll give you 40%,” Yardeni said in an interview with CNBC. He noted that the Fed still has two inflation reports and one payroll number to consider before their September meeting.

He described the current employment situation as a “very funky labor market” where initial unemployment claims suggest few layoffs while continuing claims indicate longer job searches.

“That may be related to companies concluding that they want to kind of hold off on hiring until they figure out how AI and other technologies might substitute for labor or augment the productivity of the workforce they have now,” he said.

On inflation, Yardeni expressed concern about persistent services inflation rates. “The services inflation rates in the CPI and the PPI were kind of annoying,” he said. “They were kind of stuck at 3-4%,” adding that this becomes more problematic as durable goods prices have stopped falling due to tariffs.

Despite these challenges, Yardeni views the potential delay in rate cuts as positive, suggesting it reflects underlying economic strength. “My opinion is [that this is] a good thing. The economy is resilient, and we haven’t quite gotten to 2% inflation because of the interruption with the tariffs. So, there’s no reason for the Fed to lower interest rates,” he said.

Lastly, Yardeni added that corporate performance remains impressive, with earnings reaching an all-time record in the second quarter and growth rates near 11%, rather than the expected 3%.

“Earnings have been phenomenally strong, which is kind of puzzling, because you would think margins are getting squeezed by tariffs, but you’re not seeing that in earnings through the second quarter,” he said, suggesting that productivity improvements might be stronger than official figures indicate.

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