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March 25, 2020 at 04:56 PM
Prof. Jeremy Siegel speaks at LINC 2018. (Photo: Lila Photo for TD Ameritrade Institutional)
The $2 trillion stimulus deal that Congress just agreed to should significantly help the United States weather the ongoing coronavirus crisis, and there are still more steps that Federal Reserve Chairman Jerome Powell can take to assist, according to Jeremy Siegel, professor of finance at Wharton and WisdomTree senior investment strategy advisor.
As of Wednesday afternoon, the House and Senate had yet to vote on the package.
What makes the current financial crisis so unusual is that “normally, it takes months and months” for investors to suspect the economy is not doing so well and start panicking, he said Wednesday during a market update webcast sponsored by WisdomTree Asset Management.
“Never have we had a decline like this,” he said, noting it was only six weeks ago that “we were at all-time highs.”
There are other huge differences between the current crisis and the one in 2008-2009, including the fact that financial institutions are not to blame for any “reckless” actions this time and they seem to be holding up very well now, probably at least partly because of what they learned from 2009, he said.
There was also a “wipeout of real estate values” in 2009 that “basically wiped out home equity for tens of millions of Americans,” he pointed out, noting this time — at least for now — “home equity has totally been preserved.”
The Federal Reserve recently slashed the federal funds rate by 1% to a range between zero and 0.25%. He “got it pretty quickly” and “we took out the bazooka” to deal with the crisis, Siegel said Wednesday.
But there is more the Fed can do. For one thing, “if the equity markets get unruly, they can — and I think they would — come in and buy ETFs, something like SPDRs,” Siegel said, referring to the family of ETFs managed by State Street Global Advisors.
As Siegel did on a recent call with investors, he said it was important that there be delayed payments or forgiveness periods for mortgage obligations, along with help for distressed industries “for a couple of months.”
He predicted we will pull out of the current crisis, although he did not project exactly how long it will take and predicted we have a “world recession coming up.” There is, meanwhile, no need for a complete shutdown of the entire U.S. economy as some are calling for, he said.
