Fed Rate Cut Might Not Help the Stock Market, Analyst Warns

After a weak August jobs report, markets are almost certain the Federal Reserve will cut interest rates by 25 basis points at its policy meeting next week, with some investors even betting on a larger reduction, Yahoo Finance reported.

Easier monetary policy could spark a destabilizing “melt-up” in U.S. stocks

Traders are hoping a more dovish Fed will boost equities after a choppy summer. But some Wall Street strategists caution that rate cuts may not be all good news for stocks in the near term.

Ed Yardeni, president and chief investment strategist at Yardeni Research, warned that easier monetary policy could spark a destabilizing “melt-up” in U.S. stocks without addressing the labor supply shortage, strained by President Trump’s immigration crackdown and an aging population.

Stuart Kaiser, head of U.S. equity trading strategy at Citi, called August’s weak payrolls report a “negative growth signal” that is “more powerful than the benefit of rate cuts being priced in.”

Apollo’s Torsten Sløk flagged mounting job losses in tariff-hit sectors such as manufacturing, construction, retail, and transportation.

Employment growth in these industries has now turned negative, according to his research, highlighting added strain from trade policy uncertainty.

“We think that by cutting rates this month, the Fed would be stimulating an economy that doesn’t need easier monetary policy,” Yardeni said.

“Stimulating an economy that doesn’t need stimulation won’t create more workers to address the undersupply that’s constraining the demand for labor.”

With productivity improving and unemployment still historically low, Yardeni argued that extra liquidity risks fueling a speculative rally driven by investor FOMO rather than fundamentals — the kind of rally that often ends in a sharp correction.