Former Fed economist Edward Yardeni tells the central bank to 'just do it' and hike interest rates by 50 basis points

• Former Fed economist Edward Yardeni urged the Fed to go big on rate hikes at the March FOMC meeting.
• "Just do it," he told Bloomberg. "Just get on with it, let's do 50 [basis points], the market's already discounted it."

A former Federal Reserve economist says the central bank needs to go big on raising interest rates at next month's meeting of the Federal Open Market Committee.

"Just do it," was the advice from former Fed economist Edward Yardeni.

He said the market has already priced in a rate hike in March, especially after Fed Chair Jerome Powell in January said the FOMC is "of a mind" to start hiking rates to more effectively fight inflation. Yardeni didn't just urge the Fed to hike rates, but to initiate a bigger hike than many are expecting.

"Just get on with it, let's do 50 [basis points], the market's already discounted it," the veteran strategist told Bloomberg TV early Thursday. "Look at the two-year Treasury note yield, which tends to be a great year-ahead indicator of what the market anticipates the Fed funds rate will be."

The two-year yield inched near 1.35% before rising to almost 1.5% after the inflation data. It was hovering at 1.54% as of 1:40 p.m. ET Thursday.

Yardeni, president of Yardeni Research, also said so-called bond vigilantes might soon make a "forceful comeback." The economist coined the term in the 1980s, which refers to investors who demand higher yields when inflation picks up.

"We're going to find out very shortly," he told Bloomberg. "They should be announcing they're done buying securities. That would finally free up the bond vigilantes to express their opinion. They're waking up."

The two-day meeting of the FOMC will take place on March 15 and 16.

Estimates published after the FOMC's December meeting showed officials are expecting to hike interest rates three times in 2022 and another three times next year. Some, like Bank of America, see a whopping 11 rate hikes this year and next.

The stock market has been roiled in early 2022 by expectations that the Fed will repeatedly hike rates and start reducing its balance sheet, bringing an end to the central bank's massive support of the US economy through the pandemic.

"Persistent inflation shouldn't be bearish for stocks unless and until the Fed is forced to stop it by raising interest rates to levels that cause a recession," Yardeni said in his research piece published Thursday. "Stocks provide some protection against inflation since revenues rise along with prices."