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Stocks are in the process of bottoming out, and the Federal Reserve won't raise rates as high as Chairman Jerome Powell suggested at the last policy meeting, according to market veteran Ed Yardeni.
"It seems to be that we're in a bottoming process. I think that the market has certainly discounted a great deal of what the Fed is going to do," he said in an interview with CNBC on Friday.
After the Fed hiked rates another 75 basis points last week, Powell warned investors it was "premature" to consider letting up on rate hikes given persistent inflation, which could prompt the Fed to raise rates higher than markets initially expected.
But Powell will likely face some pushback from other Fed officials, Yardeni said, pointing to recent comments from St. Louis Fed President Jim Bullard, who suggested central bankers could pause rate hikes after another steep hike in December.
Such sentiment from other Fed members could prompt the Fed to issue a fifth consecutive 75-basis-point increase in December then pause tightening, Yardeni predicted.
"That's not really news. The Fed has been lagging behind the markets, and the markets have been ahead of the Fed," he said, adding that the investors have already priced in 4.75% to 5% policy rate. The 2-year Treasury, which is the most sensitive to Fed policy, currently clocks in at 4.7%. "I think the markets have actually discounted that pretty well."
Other experts have also made the case for the Fed to ease up on hiking rates. Wharton Professor Jeremy Siegel noted that real inflation lags behind the official statistics by around 18 months, which means the Fed risks overtightening the economy if they press on with aggressive rate hikes. Analysts from JPMorgan added that inflation was showing signs of being in its final stages, which could soon put less pressure on the Fed to keep hiking.
Yardeni built a reputation as a star stock strategist after accurately calling the market bottom in 1982 and 2009. Previously, he argued that stocks bottomed out in June amid this year's market rout, but recently revised that to stocks bottoming on October 12.
His prediction runs against those of other market commentators, who have warned of a steeper stock fall as the US continues to fight inflation and flirts with recession risks.
JPMorgan CEO Jamie Dimon warned that stocks could plunge another 20%, and "Dr. Doom" economist Nouriel Roubini predicted that stocks could fall another 30%, as risks of stagflation and a potential debt crisis amplify.
