Jeremy Siegel
Scott Mlyn | CNBC
Jeremy Siegel, a professor at the Wharton School, no longer believes that an emergency cut in the key interest rate by the US Federal Reserve is necessary, but he still calls for rapid and drastic interest rate cuts by politicians.
Siegel caused a stir on Monday when he told CNBC that Fed Chairman Jerome Powell and his colleagues should initiate an emergency cut of 0.75 percentage points now and follow it with another in September.
Those comments came at a time when markets have tumbled on fears of a recession and concerns that the Fed is moving too slowly in easing monetary policy amid slowing inflation. However, positive data since then and a sharp market rally on Thursday appear to have reduced the urgency of the decision.
“I no longer believe that it is necessary. But I would like [Powell] to 4% as quickly as possible,” Siegel said in a telephone interview. “Would that be bad? No. But would it be necessary? No, not at the moment.”
On July 31, the Fed decided to keep interest rates at 5.25 to 5.5 percent. This decision quickly drew criticism after a report on weekly unemployment the next day showed a sharp rise and a manufacturing indicator pushed the sector further into contraction.
However, Thursday's data showed that applications had declined from the previous week, and an index for the services sector also came in better than expected earlier in the week.
“Of course I wanted to shake things up,” Siegel said of his call for a delay between meetings. “There's no way he's going to do that without things falling apart. I don't think things are falling apart. But by all criteria and all monetary rules … they should be below 4%.”
Market prices suggest the Fed will cut interest rates by at least a quarter of a percentage point in September and likely by a full percentage point by the end of 2024. But those expectations are volatile as investors watch how quickly the Fed plans to ease monetary policy.
An emergency cut under these circumstances is “just not the way Jay Powell does things,” Siegel said. “But Jay Powell has done things way too slowly, especially on the way up, and I just want to make sure he doesn't make the same mistakes on the way down.”
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