How do you view the Earth now that Trump’s official transition to power is approaching? what do we want to hear?
Ed Yardeni: Now, what we’re going to see with the new administration, everyone’s calling it Trump 2.0, is that it’s going to immediately receive a ton of executive orders focused on deregulation and immigration. There will probably be some changes in tax laws as well. And of course all of this will have some impact on the deficit. Therefore, many policy efforts will be required. We’ll have to wait a while to see what percolates, and once it percolates, we’ll all try to assess the economic impact. Overall, it will be fine for the economy, but there is a lot of uncertainty at the moment.
Uncertainty is something the Street really doesn’t like, and is that what we’re seeing in the 10-year Treasury yield, which is currently near 4.7? Where do you think they are heading?
Ed Yardeni: Well, there’s a few things going on in the financial markets, specifically the bond market that you’re asking about. Bond yields have risen 100 basis points since mid-September. At the same time, bond yields rose 100 basis points and the federal funds rate fell 100 basis points, partly due to the Federal Reserve cutting the federal funds rate by 100 basis points.
So the bond vigilantes, as I like to call them, disagree with the Fed and basically argue that the Fed is stimulating an economy that doesn’t need to be stimulated. And you know what? It appears they’re right, as Fed officials are starting to hint at the possibility of pausing policy here. They may not lower interest rates anytime soon. They won’t be growing any time soon either. However, interest rates are likely to remain flat. However, a bond yield of 4.5% plus or minus 25 basis points is a good level. This is like normalizing the direction that interest rates should be.
And that’s exactly what I wanted to talk about about the trajectory of rate cuts. That’s because many believe this meeting will even justify the pace of rate cuts.
Ed Yardeni: That’s exactly right; back in August of last year, I didn’t believe the economy needed a rate cut. I thought the economy over the past three years has shown how resilient it is to monetary policy tightening.
But the Fed didn’t listen to me and cut rates by 100 basis points. But now they are returning to the idea that the economy is doing well.
Inflation has not reached 2%. And on the other hand, they’re starting to worry about the potential for inflation from the next administration in terms of tariffs and, of course, deportations.
What do you think is the problem in India right now? Is it just the strength of the dollar index that is causing FIIs to withdraw their funds, or are there some structural issues in the Indian market as well? Are you thinking?
Ed Yardeni: Of course, there is a lot of uncertainty related to Mr. Trump, but there is also a lot of uncertainty on a global scale. Political instability is evident in France, Germany, and South Korea. There’s a lot of uncertainty around, and that’s actually working in the dollar’s favor.
Primary product prices remain low. China’s economy remains very weak. There is a kind of flight to quality, and the United States is where people are heading. That’s why the dollar is strong and why our stock market is so strong.
So as long as the dollar is rising like this, emerging markets in general will underperform, especially the US and India, which are still considered emerging markets, but when you think about emerging markets as a whole, That means the outlook is likely to be bleak. The best.
Therefore, I do not believe that volatility in global financial markets is as much of an issue in India as it is elsewhere.
