Advocating for consecutive emergency rate cuts of 75 basis points sparked panic, this big shot changed his tune
Wharton School professor Jeremy Siegel has changed his views on the need for an emergency rate cut by the Federal Reserve. Despite the market turmoil, positive data and market rebound have alleviated concerns about recession and a too-late rate cut. Siegel is calling for the Fed to cut rates to 4%, but no longer believes that an emergency rate cut is necessary. The market expects the Fed to cut rates by 25 basis points in September and may cut a full percentage point by the end of 2024. Siegel believes that Powell's approach is too slow and hopes he does not make the same mistakes during the rate-cutting process
Wharton School Professor Jeremy Siegel no longer believes that the Federal Reserve needs to implement emergency rate cuts, but still hopes that policymakers will cut rates quickly and aggressively.
Siegel's comments on Monday on CNBC caused a sensation, as he suggested that Fed Chairman Powell and his colleagues should immediately implement an emergency 75 basis point rate cut, followed by another 75 basis point cut in September.
These remarks came amidst a market downturn, intensifying concerns about economic recession and worries that the Fed was cutting rates too late after a slowdown in inflation. However, positive data since then and a strong market rebound on Thursday have apparently eased this sense of urgency.
"I'm no longer sure that this is necessary. But I hope Powell will quickly bring rates down to 4%," Siegel said in a phone interview. "Would it hurt? No. But is it necessary? No, not at the moment."
The Fed voted on July 31 to keep its key rate in the range of 5.25%-5.5%, a decision that was quickly criticized as a report the following day on weekly jobless claims showed a sharp increase, and manufacturing indices indicated further contraction in the sector.
However, data on Thursday showed a decrease in jobless claims from the previous week, and earlier in the week, service sector data was better than expected.
"Clearly, I want to shake things up," Siegel said when discussing his call for inter-meeting rate cuts. "If there's no breakdown, there's no way he's going to do that. I don't think things are breaking down. But by all standards and all monetary rules, rates should be below 4%."
Market pricing indicates that the Fed will cut rates by at least 25 basis points in September and could cut a full percentage point by the end of 2024. However, these expectations have been highly volatile.
Implementing emergency rate cuts in this situation "is not Powell's way of doing things," Siegel said. "But Powell's way of doing things is just too slow, especially after the rate hikes. I just want to make sure he doesn't make the same mistakes during the rate-cutting process."