Jeremy Siegel, a finance professor and chief economist, has called for an emergency 75 basis point cut in the fed funds rate following a market downturn. He emphasized the necessity of this cut and suggested another rate cut next month to align with the Federal Reserve’s targets on inflation and employment. Siegel warned that failing to act could result in negative market reactions and criticized the Fed’s slow response as a significant policy error.
Wharton Professor Calls for Emergency Rate Cut Following Market Downturn
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Jeremy Siegel Urges Emergency Rate Cut to Stabilize Economy
Jeremy Siegel, Professor Emeritus of Finance at the University of Pennsylvania’s Wharton School of Business and chief economist at asset management firm Wisdomtree, shared his economic analysis in an interview with CNBC on Monday as global markets experienced a significant downturn.
Noting that his recommendation may surprise people, he stressed:
I’m calling for a 75 basis point emergency cut in the fed funds rate, with another 75 basis point cut indicated for next month at the September meeting, and that’s minimum.
“The fed funds rate right now should be somewhere between 3.5% and 4%,” the emphasized.
“Let me give you very simple logic of my position here. At the June meeting, the Fed said that the long-run fed funds rate, when inflation reached 2% and unemployment has come up to 4.2%, should be 2.8%. That’s the normal — 2.8 is the normal fed funds rate,” he explained.
“Well, on Friday we blew it across the employment number. We’re at 4.3% … As far as inflation, we’re at 2.5%. We’ve gone down 90% towards the target on the inflation rate. We’ve overshot the target on the employment. Those are the two targets explicitly mentioned by the Federal Reserve … and how much have we moved the fed funds rate? Zero. That makes absolutely no sense whatsoever.”
Siegel was also asked: “How do you think the market will react if it doesn’t look like the Fed’s going to do anything before September?” He responded:
I think the market will react badly, very honestly.
“If they’re going to be as slow on the way down as they were on the way up, which, by the way, was the worst policy error in 50 years, then we’re not in for a good time with this economy,” Siegal concluded. “I’m just restating their own written policy: 2.8% normal fed funds, they haven’t moved one basis point, they’re nearly twice the normal fed funds rate.”
What do you think about Jeremy Siegel’s call for an emergency rate cut? Let us know in the comments section below.
