The stock market's resilience could spur the Fed to keep interest rates higher for longer, market veteran Ed Yardeni says

• Buoyant stocks could allow the Fed to keep interest rates higher for longer, Ed Yardeni says.

• Traders see the central bank pausing its hikes soon, but aren't sure when it'll begin cutting rates.

• "The market has been remarkably resilient," the market veteran told CNBC on Tuesday.

The strong showing from stocks this year might spur the Federal Reserve to hold interest rates at a higher level for longer, market veteran Ed Yardeni has cautioned.

The Yardeni Research president said on Tuesday that buoyant equities will likely spur the US central bank to keep borrowing costs at their current level – disappointing investors hoping there'll be rate cuts soon.

"The market has been remarkably resilient, mostly because the economy has been remarkably resilient," Yardeni told CNBC's "Squawk on the Street."

"They didn't want to keep raising interest rates until something really seriously breaks, and then be forced to lower interest rates," he continued, referring to the Fed. "So I think they're where they want to be – and I think they're going to keep it here."

The Fed has raised its benchmark rate from nearly zero to upwards of 5% over the past 15 months in a bid to tame inflation, which was running close to four-decade highs in 2022.

Equities tumbled in part because of its aggressive rate hikes last year. They've rallied in 2023, with the benchmark S&P 500 up 10% and the tech-heavy Nasdaq Composite jumping 24%.

The majority of traders now expect the Fed to raise interest rates one more time in June, according to CME Group's FedWatch tool – but there's much less consensus on when it could start slashing borrowing costs.

Interest-rate cuts would typically push up stock prices because spending on goods and services tends to rise, listed companies can borrow cash more cheaply,  and investors earn slimmer yields by keeping their money in savings accounts.

Read more: Investors are wrong if they think the Fed will cut interest rates this year, a fund manager beating 91% of his competitors says

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