Wharton’s Jeremy Siegel on Monday called on the Federal Reserve to urgently cut the federal funds rate by 75 basis points following Friday’s disappointing jobs report.
In addition, Siegel, an emeritus professor of finance at the Wharton School of the University of Pennsylvania, said on the “Squawk Box” program on Monday that “there should be another 75 basis points cut at the September meeting – this is the minimum.”
“The federal funds rate should be between 3.5% and 4% right now,” he said.
The Federal Reserve kept interest rates at 5.25% and 5.5% after its meeting last week. Friday’s jobs report showed economic growth was weaker than expected and the unemployment rate rose to 4.3%, the highest level since October 2021.
Siegel, chief economist at Wisdom Tree, said the unemployment rate “broke through” the central bank’s target unemployment rate of 4.2%. Most importantly, he added, inflation has fallen by 90% and is close to the Fed’s 2% target.
“How much do we raise the federal funds rate? Zero,” he said. “It makes absolutely no sense.”
Siegel isn’t worried that an emergency rate cut could send markets into a downward spiral. In fact, he thinks the market will welcome the rate cut and “move higher.”
For example, after Federal Reserve Chairman Alan Greenspan made an emergency 50 basis point cut in interest rates in early 2001 after not cutting rates at the December 2000 meeting, he said the market rebounded sharply.
“Don’t think the Fed knows anything… When did the Fed know anything about the economy?” he said. “The markets know better than the Fed. They have to respond.”
Siegel predicted that if the Fed does not urgently cut interest rates before its September meeting, the market will react adversely. “If they’re as slow on the way down as they are on the way up, which by the way is the first policy mistake in 50 years, then our economy is not in a good place.”
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