Jeremy Siegel
Scott Millian | CNBC
Wharton professor Jeremy Siegel believes the Fed no longer needs to make an emergency rate cut, but he still wants policymakers to cut rates quickly and aggressively.
Siegel caused a stir on Monday when he told CNBC that Federal Reserve Chairman Jerome Powell and his colleagues should implement an emergency 0.75 percentage point cut now and follow it with another cut in September.
The comments came as markets have been tumbling amid recession fears and concerns that the Federal Reserve may be slow to ease policy now that inflation has slowed. However, positive data since then and a strong rally in the market on Thursday appear to have eased the urgency.
“I no longer think it's necessary, certainly,” Siegel said in a phone interview. “But I want (Powell) to get to 4% as quickly as possible. Would that be bad? No. But would it be necessary? No, not at this time.”
The US Federal Reserve voted on July 31 to keep its benchmark interest rate at 5.25% to 5.5%, a decision that was quickly criticized when a report the next day on weekly unemployment claims showed a sharp rise and a manufacturing index showed the sector contracting further.
However, data released on Thursday showed that claims fell from the previous week, and the services sector reading earlier in the week was better than expected.
“Obviously I wanted to shake things up,” Siegel said of his call for an emergency meeting. “There’s no way he could have done that without things falling apart. I don’t think things are falling apart. But by all standards and all monetary rules… it should be below 4%.”
Markets are pricing in the Fed cutting rates by at least a quarter of a percentage point in September and likely cutting them by a full point by the end of 2024. However, those expectations have been volatile as investors watch how quickly the Fed thinks it should ease policy.
Cutting spending under these circumstances “is not a typical Jay Powell thing to do,” Siegel said. “But Jay Powell has been very slow, especially on the way up, and I just want to make sure he doesn’t make the same mistakes on the way down.”
