The bond market (^TYX, ^TNX, ^FVX) indicates it is possible that recession fears are overshadowing inflation fears.
Yardeni Research president Ed Yardeni joins Market Domination host Josh Lipton and Barron senior market analysis writer Paul La Monica to discuss the current bond yields and the Federal Reserve's cautious approach to rate cuts.
To watch more expert insights and analysis on the latest market action, check out more Market Domination here.
And let me get your take on what we're seeing in the 10 year, you know, I'm looking here at we're back to 405. Is the message that sending investors at? Is it that okay, recession fears right now outweigh inflation fears and two I'm curious, where do you see the 10 year headed from here?
Yeah, I think you're right. I think uh clearly the uh the straightforward interpretation is the bond yields come down uh on the tariffs and uh we we all know that the the tariffs could have an inflationary potential and that that in turn could create stagflation because consumers uh were the consumers who voted for uh Trump, many of them expected that the first thing it would do would bring prices down instead we're going to see prices up. So that could depress consumer spending in the second half of the year and you're right, the bond market seems to be focusing more on the weakening economy rather than on the inflationary potential. I think there's still a belief that the Fed's going to come in and and save the day, but uh I don't see that happening at all. I think uh the Fed is in no rush to bail out this misguided trade policy coming out of the administration. I think they're going to say, look, uh we can't move right here, we can't lower rates because we're going to have a bout of inflation. We think it's going to be transtory, but we can't be certain about that. And so I I think the Fed is uh is going to hold off uh giving us any sort of relief.
Yeah, I was going to ask you about that as well, uh Ed with regards to the Federal Reserve, when do they feel compelled do you think to start lowering rates again? How high would the unemployment rate have to go? And is there the risk that they wait too long to cut and it's time where we know they're in an easing cycle. So it's not as if there's the symbolism of it's the first rate cut. They've cut rates already a couple of times. It's just a pause right now.
Yeah, it's it's a pause and uh last we heard from them, they were still kind of in a duvish pause because they were saying that there are no hurry to lower rates. They didn't say we're no hurry to do anything. They didn't say we're no hurry to raise rates. They said we're no hurry to lower rates. So their heads are still clearly focusing on on lowering interest rates here. Uh but the reason they're in no rush is because the economy up until now has actually looked pretty good and uh inflation was still above their 2% target. Now what we can expect is that inflation will look worse and the economy will look worse. So scratch your head and what do you do with that dual mandate? And I think uh for the sake of their credibility, they can't let inflation get out of hand the way they did in 2021, 22, 23. So I think they're they're going to say we we can't rush here because we got an inflation problem.