Rate Cuts, Meltups, And Market Euphoria — Ed Yardeni Says It's 1999 All Over Again

Author: Piero Cingari | October 27, 2025 09:51am

The Fed is set to lower interest rates again this year, but according to Ed Yardeni, the economy doesn't need the help—and the result could be a stock market meltup reminiscent of the late 90s tech frenzy.

In a note shared Monday, Yardeni said he's trimming the odds of a "Roaring 2020s" bull market scenario from 55% to 50%, while raising the probability of an even more bullish meltup from 25% to 30%.

Behind this shift lies a potent mix of unexpectedly soft inflation, sustained economic strength and a Federal Reserve that seems determined to ease, even if there's no pressing macroeconomic need.

"Stock investors love that the Fed Put is back, especially if it isn't needed," Yardeni said, referencing the market's confidence that the Fed will always step in to cushion downside risk.

The S&P 500 – as tracked by the Vanguard S&P 500 ETF (NYSE:VOO) – is up 18.6% year over year and recently surged to fresh all-time highs after September’s cooler-than-expected CPI print of 3.0%.

Is The Fed Cutting Into Strength?

According to Yardeni, the current macro picture paints a puzzling backdrop for monetary easing.

September's headline and core CPI both clocked in at 3.0%, still 100 basis points above the Fed's 2.0% target.

Meanwhile, the unemployment rate remains near historically low levels at 4.3%—barely above the Fed's long-run estimate of 4.2%.

Economic momentum remains intact. October's flash PMI data from S&P Global showed the Composite PMI Output Index climbing to 54.3, its highest reading since July.

The Services PMI reached 55.2, marking a strong acceleration in activity across the sector.

Manufacturing also posted gains, with the PMI rising to 52.2, driven by the sharpest increase in new orders in a year and a half. On the labor front, employment rose for the tenth time in the past 11 months.

Altogether, these indicators suggest that the U.S. economy is expanding at a solid pace.

Real GDP grew 3.8% in the second quarter and is tracking at 3.9% for the third quarter, according to the Atlanta Fed's GDPNow model. Consumer spending has also been resilient, rising 2.5% in the second quarter and trending toward 3.3% in the third quarter.

Despite the healthy data, markets are pricing in two more 25-basis-point cuts to the federal funds rate before year-end.

Will Easing Fuel The Next Stock Bubble?

Yardeni remains positive on stocks, yet he's cautioning that investor optimism may be tipping into dangerous euphoria.

"If the Fed cuts into strength, the labor market won't benefit much, but risk assets will," he said, noting that asset inflation—rather than consumer inflation—could be the result.

He sees early signs of a possible meltup, similar to what occurred in the late 90s, when excessive monetary easing helped inflate the dot-com bubble.

With productivity improving and the economy adapting to artificial intelligence, Yardeni still believes in the "Roaring 2020s" thesis over the long term.

But he warns that easy policy amid already strong fundamentals could push valuations to unsustainable highs.

"The current levels of interest rates are at neutral already," he said. Cutting now could do more to overheat Wall Street than help Main Street.

And that, in his view, makes this feel a lot like 1999.

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Image created using artificial intelligence via Midjourney.

Posted In: VOO