Jeremy Siegel
Scott Mullin | CNBC
Wharton School professor Jeremy Siegel no longer believes it is crucial for the Federal Reserve to implement emergency interest rate cuts, but still hopes that policymakers will cut rates quickly and aggressively.
Siegel caused a stir on Monday when he told CNBC that Fed Chairman Powell and his colleagues should immediately implement an emergency rate cut of 0.75 percentage point and another in September.
The comments came as markets tumbled on worries about a recession and concerns that the Fed would be too slow to ease policy now that inflation has fallen. However, positive data since then and a strong market rally on Thursday have clearly eased the urgency.
“I no longer definitely think it’s necessary. But I would like (Powell) to get rates down to 4% as soon as possible,” Siegel said in a phone interview. “Would it be bad? No. But is it necessary? No, not right now.”
The Fed voted on July 31 to keep key interest rates in a range of 5.25%-5.5%, a decision that quickly drew criticism as the next day’s weekly jobless claims report showed a surge and manufacturing indicators It shows that the industry is shrinking further.
However, Thursday’s data showed jobless claims fell from the previous week, and services sector data earlier in the week also came in better than expected.
“Obviously, I want to make a difference,” Siegel said of his call for action during the meeting. “There’s no way he can do that without things falling apart. I don’t think things will fall apart. But by all standards and all monetary rules … they should be below 4%.”
Market pricing indicates that the Federal Reserve will cut interest rates by at least 25 percentage points in September and possibly one percentage point by the end of 2024.
Siegel said emergency cuts in this situation “are not the way Powell does things.” “But Jay Powell was so slow, especially on the way up, and I just wanted to make sure he didn’t make the same mistake on the way down.”
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