Ed Yardeni: Expect US Fed to be cautious with rate cuts; prefer India over China

Ed Yardeni, President of Yardeni Research believes the US Federal Reserve may be cautious in rate cuts and it wouldn't be surprising if it starts speaking more firmly about not lowering rates too quickly or too much, to prevent people from expecting too many rate cuts.

"Now, there could be some correction (in the market), if and when the market starts to conclude that the Fed isn't going to be quite as easy, as is, has been discounted recently. I will not be surprised if the Fed officials come out talking quite hawkish, trying to convince people not to overreact here and anticipate too much of an easy move," he said in an interview with CNBC-TV18.

He highlighted that the US economy experienced better-than-expected growth in 2023, reducing recession fears. As the economy is strong and inflation is almost at the level the Fed wants, Yardeni believes the central bank will probably not take strong actions to boost the market to avoid causing a rise in inflation again.

Yardeni anticipates a healthy diversification to small and mid-cap companies in the US market, and favours India over China due to geopolitical tensions and restrictive domestic policies in China.

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China's factory activity contracted in December, marking the lowest level in six months. The official manufacturing PMI declined to 49, as reported by the National Bureau of Statistics. This weaker-than-expected performance has raised expectations of potential government intervention to stimulate the economy.

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