The Federal Reserve announced they will be holding interest rates steady. Fed Chair Jerome Powell revealed that potential future rate cuts have been discussed.

Yardeni Research President Ed Yardeni says the Fed's decision and messaging were "very rationale" and a "correct assessment." In his view, the Fed's monetary policy signals the economy is slowing as expected without entering recession territory, while inflation continues on a moderating trajectory.

"All of a sudden the Fed seems to be dovish," Yardeni exclaims, believing recent commentary points to a pivot to an easing policy stance. With the change in tone, Yardeni now predicts a Fed rate cut is possible as early as March 2024.

"I mean for two years now, it's like everything is gonna go wrong," Yardeni tells Yahoo Finance. "And now... everybody's agreeing that it's going right, let's enjoy it for a day."

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Video Transcript

- All right, let's stick with this and get another perspective here. Fed Chair Powell wrapping up his press conference just minutes ago after the Fed decided to hold rates steady. Stocks rallying on that news. And Powell admission that the Fed is talking about timing of rate cuts.

Here to discuss is Dr. Ed Yardeni, president of Yardeni Research. Dr. Ed, it's great to see you. Let me start with just getting your reaction, your response, Ed, to what the Fed did and said today.

ED YARDENI: Well, it was all very rational, very reasonable. It was a correct assessment that the economy is slowing. It's not going into recession. And most importantly, there's evidence that inflation across the board is continuing to moderate. It still remains above the Fed's target.

But if you take out shelter, the CPI inflation rate was basically at where the Fed's wants it to be, at 2%. And we know that shelter inflation is going to be coming down. So not really that much of a surprise. I think it was a bit of a surprise that the summary of economic projections maybe went for 75 basis points as the drop in the Fed funds rate next year instead of 50 basis points.

But the market loved it. I loved it. You know, I thought that maybe it's turning out that I wasn't bullish enough because I thought we'd get to 4,600 by the end of the year. And here we are at basically 4,700.

- Man, so everything is fantastic. Is that where we are right now? I mean, is there a risk-- we talked to a guest earlier Andrew Levin, who is an economics professor at Dartmouth, who said, you know, we still have to be on the lookout for particularly services and shelter inflation not cooling down more. And while, of course, Powell said they're attentive to those types of risks, he doesn't seem particularly concerned should they be. Is that something you're watching?

ED YARDENI: Well, I think that most economists have missed a very important issue when it comes to inflation. Most of them have thought that we would need a recession in the US in order for inflation to come down in the US. But our friends in China and Europe did it for us.

They've been having a recession. There's a shallower recession in Europe. There is a property depression in China. And China's been exporting deflation in goods. So goods inflation is not an issue. Yes, there's still services inflation that's an issue, but that's bound to come down. Rent is a laggard in terms of inflation indicators.

So I think, again, everything kind of made sense. Let's just enjoy the moment and not get so negative about how everything could go wrong. I mean, for two years now, it's like, everything is going to go wrong. And now, it's finally-- everybody's agreeing that it's going right. Let's enjoy it for a day.

- You know what? That's just good, solid life advice. Enjoy the moment, right? Let me ask you this, Ed. Given what you've been talking about, given that backdrop, when do you think the Fed could start cutting rates here? You know, billionaire investor Bill Ackman, he made some headlines, Ed, when-- I'm sure you saw when he said, listen, he thought they could start cutting as soon as the first quarter. Is that where you're at?

ED YARDENI: Well, all of a sudden, the Fed seems to be, you know, dovish. I mean, that's really what this was all about. It wasn't even really much of a hint. I didn't hear too many hawkish squawks coming out of that press conference. It sounded kind of dovish. And so yeah, I'm rethinking my notion of when the Fed might go easier on us. And it could very well be in March.