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Wharton School’s esteemed professor Jeremy Siegel has moderated his earlier position on the necessity of an immediate emergency rate cut by the Federal Reserve. While initially advocating for a drastic reduction, recent economic data and market responses have led him to adjust his views.
Previously, Siegel had voiced a strong opinion during a CNBC interview, suggesting that Fed Chair Jerome Powell and his team should enact a significant 0.75 percentage point cut immediately, with plans for another subsequent cut. His comments were made as financial markets faced downturns driven by recession worries and perceptions that the Federal Reserve was lagging in its monetary policy adjustments, especially given the deceleration in inflation.
However, following a robust market rally last Thursday and encouraging economic indicators, Siegel acknowledged the reduced urgency for such drastic measures. “It may no longer be necessary to implement an emergency cut,” Siegel remarked during a recent interview. He emphasized his desire for the Fed’s rates to decrease to 4% swiftly, though he conceded that immediate extreme measures might not be essential.
The Fed, on July 31, opted to maintain the benchmark interest rate at a range of 5.25% to 5.5%. This decision faced immediate scrutiny, especially after a report the following day indicated a spike in jobless claims and a contraction in manufacturing activity. Nonetheless, subsequent data revealed improvements, with a decrease in jobless claims and positive developments in the service sector, alleviating some concerns.
Siegel reflected on his initial call for an intermeeting rate cut, aimed at provoking a quicker adjustment by the Fed. “I wanted to shake things up,” he stated, acknowledging that his bold approach was intended to ensure the Fed did not delay its policy easing as it had previously with policy tightening.
Market analysts now anticipate that the Fed might lower rates by at least a quarter point in September, with further reductions possible by the end of 2024. However, investor sentiment remains cautious, watching closely for signs of how swiftly the Fed might act in adjusting its policies.
Siegel critiqued Powell’s historical pace in adjusting rates, emphasizing a desire for more timely actions. “An emergency cut isn’t typical for Jay Powell,” Siegel noted, “but I hope he can avoid past delays in responding to changing economic conditions.”
As the situation evolves, Siegel’s tempered stance reflects broader economic realities and a more nuanced approach to federal monetary policy in response to shifting market dynamics.
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