Wharton School distinguished professor Jeremy Siegel has moderated his previous stance on the need for an immediate emergency rate cut by the Federal Reserve. Although he initially supported a sharp reduction, recent economic data and market responses have led him to change his views.
Siegel had previously made a strong statement in an interview with CNBC, suggesting that Fed Chair Jerome Powell and his team should immediately implement a significant 0.75 percentage point cut, with plans for another cut later. His comments came as financial markets faced declines driven by recession worries and perceptions that the Federal Reserve was lagging behind in its monetary policy adjustments, especially given the slowdown in inflation.
But following a strong market rally on Thursday and encouraging economic indicators, Siegel acknowledged the reduced urgency for such drastic measures. “There may no longer be a need for an emergency cut,” Siegel said in a recent interview. He emphasized his desire to see the Fed’s rates fall quickly to 4%, although he acknowledged that immediate extreme measures may not be essential.
On July 31, the Fed opted to keep its benchmark interest rate in a range of 5.25% to 5.5%. This decision faced immediate scrutiny, especially after a report the following day indicated a spike in jobless claims and a contraction in manufacturing activity. However, subsequent data showed improvements, with lower jobless claims and positive developments in the service sector, easing some concerns.
Siegel reflected on his initial call for a rate cut at the meeting, which was intended to prompt a quicker adjustment by the Fed. “I wanted to shake things up,” he said, acknowledging that his bold approach was intended to ensure the Fed did not delay easing as it had previously done with tightening.
Market analysts now expect the Fed to lower rates by at least a quarter point in September, with further cuts possible by the end of 2024. However, investor sentiment remains cautious, watching closely for signs of how quickly the Fed might move to adjust its policies.
Siegel criticized Powell's historical pace of rate adjustments, emphasizing a desire for more timely action. “An emergency cut is not typical of Jay Powell,” Siegel noted, “but I hope he can avoid the delays of the past in responding to changing economic conditions.”
As the situation evolves, Siegel's moderate stance reflects broader economic realities and a more nuanced approach to federal monetary policy in response to changing market dynamics.