Yardeni Research questions whether recent Federal Reserve rate cuts can revive slowing U.S. employment growth, arguing that strong productivity and solid economic momentum—not weak demand—are shaping the current landscape.
Yardeni Research highlighted that real GDP grew strongly, jumping 4.3% (saar) in Q3 following a 3.8% rise in Q2, while aggregate hours worked remained flat. This implies productivity increased by over 3.5% in the past two quarters, aligning with their “productivity-led Roaring 2020s” outlook.
Consumer spending also remained robust, rising 3.5% in Q3 compared to 2.5% in Q2, despite stagnant hours worked. Corporate profits surged to a record high, with profits from current production increasing by $166.1 billion (ssar) in Q3.
Meanwhile, the core PCE index rose 2.8% (saar) and 2.9% year-over-year.
Against this backdrop, Yardeni Research questioned the Federal Reserve’s decision to cut interest rates by 75 basis points since September, following aggressive easing late last year. While officials are increasingly worried about weak payroll growth—evidenced by December’s Consumer Confidence Index showing 20.8% of respondents saying “jobs are hard to get”—the firm doubts that lower rates will fix the problem.
Yardeni points to a skills mismatch and the rising impact of AI, which is boosting employee productivity, as factors limiting the effectiveness of rate cuts on employment growth.
Yardeni Research warned that easing could instead drive asset inflation and postpone a return to 2% consumer inflation, cautioning to “beware the reaction of the Bond Vigilantes.”
Sources: Investing
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