The Fed Can Avoid a Slowdown With One More Rate Cut: Jeremy Siegel
- The central bank should bring the fed funds rate down at least another 25 basis points, Wharton School professor Jeremy Siegel says.Â
- “I agree completely with” St. Louis Fed President James Bullard, who has advocated for a 50 basis point cut, he adds.Â
The U.S. economy will suffer a meaningful slowdown if the Federal Reservedoesnâ€™t cut interest rates further this year, Wharton School professor Jeremy Siegel told CNBC on Wednesday.
The central bank should bring the fed funds rate down at least another 25 basis points, the longtime stock bull said on â€œClosing Bellâ€ shortly after the Fed approved a quarter-point rate reduction.
â€œI agree completely withâ€ St. Louis Fed President James Bullard, who has advocated for a 50 basis point cut, he added.
The reason Siegel would like to see a deeper cut from the central bank is because heâ€™s concerned about the fed funds rate being higher than the 10-year Treasury yield, which was around 1.76% on Wednesday. The Fed said it would lower its benchmark overnight lending rate to a target range of 1.75% to 2%, from 2% to 2.25%.
â€œFed funds and the 10-year is still inverted,â€ Siegel said. â€œWe should bring down that fed funds rate at least another 25 basis points. … We got to normalize the curve.â€
The Fed was divided in its decision to lower rates Wednesday, with three officials dissenting. Central bank officials are also split on further action this year. U.S. stocks closed little changed after the central bank failed to signal it will cut rates again in 2019.
â€œWhat the Fedâ€™s telling you is this is risk management. They want to bring down rates a little bit but they ultimately see the economy as being in good shape,â€ said Gregory Faranello, head of U.S. rates at AmeriVet Securities.
Siegel doesnâ€™t expect that there will be a recession but said that there will be a â€œsignificant slowdown.â€ He cited FedExâ€™s pessimism about the global economyon the delivery giantâ€™s post-earnings conference call with analysts as a reason to be concerned.
The Fed can avoid that with one more rate cut, he said.
â€œI know some of the [economic] data has been decent,â€ Siegel said.
â€” CNBCâ€™s Fred Imbert contributed to this report.
By: Berkeley Lovelace Jr.