The Federal Reserve is accused of "overstepping" its dual mandate. Professor Wharton calls for an emergency 75 basis point rate cut to rescue the market

According to the Wise Finance APP, Jeremy Siegel, a professor at the Wharton School, issued an urgent call on Monday, advocating for the Federal Reserve to take action before the September meeting and urgently cut interest rates by 75 basis points. Siegel believes that given the current inflation and employment situation, the Federal Reserve has already achieved its policy goals.

Siegel made this proposal against the backdrop of a market sell-off, mainly due to the July employment report released last Friday showing a slowdown in growth, sparking concerns about an economic recession. In addition, the market is also worried that the Federal Reserve has not timely adjusted the federal funds rate, which has risen from 5.25% to 5.5%.

Siegel emphasized that the current federal funds rate should be between 3.5% and 4%, based on his analysis at the June meeting when he pointed out that when the inflation rate drops to 2% and the unemployment rate reaches 4.2%, the long-term federal funds rate should be 2.8%. He noted that the employment data from last Friday showed an unemployment rate of 4.3% and an inflation rate of 2.5%, close to the Federal Reserve's target. Siegel believes that considering these developments, the decision of the Federal Reserve to keep rates unchanged is "completely unreasonable".

Siegel also mentioned that the market would react positively to an emergency rate cut by the Federal Reserve. He recalled the early 2001 when then-Fed Chairman Alan Greenspan implemented a larger-than-expected rate cut after not cutting rates at the December 2000 meeting, which was warmly received by the market.

Siegel criticized the Federal Reserve's current policy response as slow, believing it is "far behind the situation" and describing the Federal Reserve as being in a "wait-and-see" mode. Meanwhile, Federal Reserve Chairman Jerome Powell stated at the July meeting that the plan to start cutting rates in September is "under consideration", while the Federal Open Market Committee has kept the benchmark rate unchanged since July 2023.

Siegel's remarks highlight the urgency and complexity in current monetary policy decisions, while also reminding market participants to closely monitor the Federal Reserve's policy direction.

It is reported that on Monday, negative sentiment was so strong that global financial markets were in turmoil, with stocks plummeting significantly from Asia to Europe and then to the United States. The derivatives market at one point believed that the likelihood of an emergency rate cut in the next week exceeded 50%.

The July non-farm payroll report released last Friday showed that the economy added fewer jobs than expected, only 114,000, and the unemployment rate rose slightly from 4.1% to 4.3%, leading to speculation about Federal Reserve action. Wall Street firms are starting to call for a more aggressive rate cut by the Federal Reserve than previously expected. Morgan Stanley economist Michael Feroli wrote in a report, "There are compelling reasons to take action before September 18 or the next Fed policy update.

On Monday, the Asian markets were in a state of "widespread mourning". The Nikkei 225 index closed down 12.4%, marking the largest single-day decline since the stock market crash on "Black Monday" in the United States on October 20, 1987