Jeremy Siegel
Scott Mullin | CNBC
Wharton professor Jeremy Siegel doesn’t think it’s important for the Fed to make emergency interest rate cuts anymore, but he still wants policymakers to cut rates quickly and aggressively.
Siegel caused a stir on Monday when he told CNBC that Fed Chairman Jerome Powell and his colleagues should immediately implement an emergency 0.75 percentage point rate cut, followed by one more cut in September.
Those comments came as markets plunged on fears of a recession and worries that the Fed was being too reluctant to ease monetary policy now that inflation has slowed, but strong data since then and Thursday’s ferocious market rally appear to have eased tensions.
“I don’t think it’s necessary anymore. But [Powell] “We should get it down to 4 percent as soon as possible,” Siegel said in a phone interview. “Is it a bad thing? No. But is it necessary? No, not at this point.”
On July 31, the Fed voted to keep interest rates steady at 5.25% to 5.5%, a decision that was quickly criticized after the weekly jobless claims report the following day showed a sharp increase and manufacturing indicators showed the sector further contracted.
But Thursday’s data showed that jobless claims fell from the previous week, and a services sector reading also beat expectations at the start of the week.
“Obviously, I wanted to shake things up,” Siegel said of his reasons for seeking the between-meeting step. “You can’t do that without things getting worse. I don’t think things are getting worse. But by all standards and monetary policy rules, the rate of rate hikes should be less than 4 percent.”
Markets expect the Fed to cut rates by at least a quarter of a percentage point in September, and perhaps a full percentage point by the end of 2024. But those expectations are fluctuating as investors wait to see how quickly the central bank thinks it should ease policy.
Emergency cuts under these circumstances “are not the Jay Powell way,” Mr. Siegel said, “but Jay Powell moved things too slowly, especially on the upswing, and I just want to make sure we don’t make that same mistake on the downswing.”
