Wharton’s Jeremy Siegel says Fed needs to make an emergency rate cut
Jeremy Siegel
David Orrell | CNBC
Wharton’s Jeremey Siegel on Monday called on the Federal Reserve to make an emergency 75 basis points emergency cut in the federal funds rate after Friday’s disappointing jobs report.
In addition, there should be “another 75 basis point cut indicated for next month at the September meeting — and that’s minimum,” Siegel, professor emeritus of finance at University of Pennsylvania’s Wharton School of Business, said on “Squawk Box” Monday.
“The fed funds rate right now should be somewhere between 3.5 and 4%,” he said.
The Federal Reserve kept interest rates at 5.25% and 5.5% after its meeting last week. On Friday, the jobs report showed slower growth than expected and an unemployment rate that moved higher to 4.3%, its highest since October 2021.
That unemployment figure “blew through” the central bank’s target unemployment rate of 4.2%, said Siegel, chief economist at Wisdom Tree. On top of that, inflation has gone down 90% towards the Fed’s target of 2%, he added.
“How much have we moved the fed funds rate? Zero,” he said. “That makes absolutely no sense whatsoever.”
Siegel isn’t concerned that an emergency cut will send the markets into a downward spiral. In fact, he thinks the market will welcome the cuts and “rips higher.”
For instance, Fed Chair Alan Greenspan made an emergency 50 basis point cut in early 2001 after not cutting at the December 2000 meeting — and the market rallied sharply, he said.
“Don’t think that the Fed knows something. … Since when has the Fed known anything about the economy?” he said. “The market knows so much better than the Fed. They’ve got to respond.”
If the Fed doesn’t make an emergency cut before September’s meeting, the market will react badly, Siegel predicted. “If they are going to be as slow on the way down as they were on the way up, which by the way was the first policy error in 50 years, then we’re not in for a good time with this economy.”
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