Wharton School of Business professor Jeremy Siegel said Friday that the US Federal Reserve does not need to raise more than 100 basis points as an economic slowdown looms.
“I think we just need another 100 basis points,” Siegel said on CNBC.Squawk Box Asia“The market thinks it will be a little more — 125, 130 basis points more.” I feel like we won’t need that much because of what I see as slowing down.”
“If you want to do it all at once, or you want to do it over a period of two to three meetings – it won’t make much difference,” he said. “The question is what final interest rate should we go to.”
The Fed raised the benchmark interest rate by 0.75 percentage points in both June And the July The largest consecutive increases since the central bank began using the money rate as a main monetary policy tool in the early 1990s.
merchants They are betting that the Fed will raise interest rates again At its next meeting in September and then again in November and December before cutting rates in the spring, depending on evolving economic conditions.
Siegel added that housing costs, which are a significant factor in core inflation, said housing had “recently fallen by a record amount beyond any six-month period”.
“The actual reality in the US is that real estate prices are really starting to fall,” Siegel said.
Siegel said investors will want to hear more details about what the Fed plans to do about inflation in Fed Chair Jerome Powell’s speech at Jackson Hole later Friday.
Powell is scheduled to speak at the annual symposium, where he likely to confirm That the central bank would use all the firepower it needed, in the form of raising interest rates, to quell inflation. It’s also likely to signal that, after the Fed finishes raising rates, it is likely to keep them there, observers say, contrary to market expectations that it will actually start cutting rates next year.
Siegel said markets would prefer if Powell was indicating that the Fed would be watching upcoming CPI data, rather than “backward-looking data.”
“I don’t want Powell to be overly aggressive just by looking at the visual stats for the CPI,” Siegel said. “If we look at the difference between inflation-protected bonds or nominal bonds, we find that they have pulled back from their highs,” he said, adding that inflationary pressures appear to have stabilized.
Inflation-linked bonds have risen in popularity This year, as investors look for returns to combat rising prices.
“hopefull [Powell] You realize that the amount of tightening we’ve put in, and are expected to put in between now and the end of the year – at least 100 basis points – is causing a significant slowdown in the economy,” Siegel added.
Federal Reserve officials were “non-committal” about the size of the rate hike for the upcoming Federal Open Market Committee meeting – scheduled for September 20-21 – according to Reuters. Report. An opinion poll expected a 50 basis point rise at the meeting.
Siegel said the growth in the money supply in the United States is evidence of an economic recession, describing it as “one of the sharpest slowdowns in history.”
Other key data, such as the August non-farm payrolls due next week, is something Siegel said he will be watching closely. Show the latest data Employment rates rose in July, beating estimates It defies fears of a recession.
Siegel added that he was “disturbed” that there is not much discussion about what he called a “productivity collapse,” describing it as the biggest puzzle the Fed needs to address in upcoming meetings.
“We added 3.2 million workers, yet we have seen a drop in GDP like we’ve never seen before,” he said. “This is an unheard of productivity collapse in proportions, and it’s very significant.”
“What are they doing? How many hours?” He said. “Are we misreporting? Are people who work from home not really working from home?”
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