Jeremy Siegel Expects Rate Cut, Stock Surge in Second Half of 2023

News February 02, 2023 at 02:21 PM
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Wharton School economist Jeremy Siegel expects the Federal Reserve to cut interest rates significantly in the second half of 2023, possibly sparking a big stock market rebound.

"I don't think rates are going to remain higher. I think they're going to go down dramatically in the second half because of the weakening economy, the control over inflation," the professor emeritus of finance said on CNBC's "Squawk Box" Thursday. "I think that's what the market is looking forward to."

If the Fed brings down its discount rate, "the market'll say, 'Hey, a mild recession or even a moderate recession for a year, I'll take that.' That's why I think the market still has a good chance of giving that 10 to 15% gain, the forecast that I gave on Jan. 2," Siegel said.

The Fed on Wednesday slowed its rate-hiking pace by raising its benchmark rate by a quarter percentage point, with Chairman Jerome Powell acknowledging inflationary pressures have started to moderate while indicating the central bank anticipates further rate increases.

Siegel, who has sharply criticized the Fed over the past year for being late in responding to inflation and for aggressively raising rates when it did respond, appeared to take heart in Powell's latest comments.

"We begin to see that Chairman Powell and the Fed are beginning to get it, in my opinion. It was much more two-sided. He acknowledged that the housing sector is really a faulty indicator" because of the delay in how the Bureau of Labor Statistics presents the data, he said.

"He's acknowledging a lot of the things that I've talked about and others have talked about over the last year, that inflation has come down absolutely, dramatically," Siegel said.

There's no way of knowing how many more rate hikes the Fed will make, according to the professor. "The Fed really only knows maybe a week or two before the meeting the hike that they're going to do," he said.

"All we need is one negative payroll month … I think that really changes the whole narrative, because he said that's the last thing that's drum-tight. That's the labor market. We see the labor market break in some way or another, I don't think any more increases are going to be on the table," Siegel said.

(Image: Lila Photo for TD Ameritrade Institutional)

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