Jeremy Siegel: Bar ‘Extremely High’ for Another Fed Rate Hike
Three important data points would need to come in unexpectedly hot, the Wharton economist suggested.
The bar is set “extremely high” for the Federal Reserve to raise interest rates again after its recent 25-basis-point hike, Wharton School economist Jeremy Siegel said Monday on CNBC’s “Squawk Box.”
Siegel, a professor emeritus of finance at Wharton and WisdomTree senior investment strategy advisor, said three unlikely economic scenarios would need to happen for the Fed to raise rates again soon.
April’s Consumer Price Index inflation data, to be released Wednesday, would have to come in “much hotter than expected,” and the May employment report similarly would need to be “very hot,” he said. The CPI data for May, to be released as the Fed starts its next meeting in June, also would need to be much hotter than expected, the economist said.
Siegel sees an extremely low probability that all three events would occur, and if they did, the Fed might add another 25 basis points to its benchmark interest rate, he said.
“I think they’re going to wait a long time and actually start reducing rates later,” Siegel predicted.
The Fed has raised interest rates by a cumulative 500 basis points (or 5%) since March 2022 to wrestle inflation down to the bank’s 2% target; that includes last week’s 25-basis-point increase, which pushed the benchmark interest rate range to 5% to 5.25%.
Fed Chair Jerome Powell now seems content to let tightening lending standards play out and see whether that does enough to keep slowing inflation, Siegel said. He also noted that Powell last week said he doesn’t consider wage increases, which the Fed chair previously focused on, to be the principal cause of inflation.
“I thought that was an interesting statement,” Siegel said. “Now that’s something that I believe in, I think that it’s wrong to suppress wages, which have fallen behind inflation.”
U.S. employers added an unexpectedly high 253,000 jobs in April, when unemployment declined slightly to 3.4%, the Labor Department reported Friday. The labor market had slowed some in the first quarter.
Two or three negative payroll reports, however, could put political pressure on the Fed to start knocking down rates again, Siegel said. If the real economy is seen to be faltering, then inflationary pressures won’t be a real Fed concern, he added.
In that case, Siegel said, “By the fall, we might actually see them notch down rates.”
(Image: Bloomberg)