Wharton’s Jeremy Siegel on Fed rate hike ahead of Jackson Hole

Wharton business school professor Jeremy Siegel said on Friday that the US Federal Reserve doesn’t need to raise more than 100 basis points because the economy is slowing.

“I think we just need to add 100 basis points,” Siegel said on CNBC’s “Squawk Box Asia. “” The market thinks it will be a little more – 125, 130 basis points more. My feeling is we won’t need that much because what I see is a slowdown. “

“If you want to do it all at once, or you want to do it in two to three meetings – it’s not going to make much of a difference,” he said. “The question is to what end price do we have to go.”

The Fed raised its benchmark interest rate by 0.75 percentage points in both June and July – the largest consecutive increase since central banks began using the deposit rate as the main monetary policy tool in the early 1990s.

Businessman are betting the Fed will raise rates again at the next meeting in September and then again in November and December before cutting rates in the spring, depending on developing economic conditions.

I hope [Powell] acknowledges that the level of tightening we’ve done and expect to do between now and the end of the year – at least 100 basis points – is slowing the economy down a lot.

Jeremy Siegel

Professor at Wharton School of Business

Siegel added housing costs, a key element of core inflation, said housing had recently “fallen in record price declines beyond any six-month period.”

“In fact in the United States, real estate prices are starting to go down,” says Siegel.

What to pay attention to

Siegel said investors will want to hear more details about what the Fed intends to do on inflation at Fed Chairman Jerome Powell’s speech in Jackson Hole late Friday.

Powell is scheduled to speak at the annual symposium where he capable of emphasizing that the central bank would use all the power it needed, in the form of interest rate hikes, to stave off inflation. Followers said he was also likely to point out that after the Fed finishes raising rates, it is likely to keep them there, contrary to market expectations that they will actually start cutting. interest rates next year.

Siegel said the markets would love it if Powell signaled that the Fed would be watching the upcoming consumer price index data, rather than “looking backwards.”

“I don’t want Powell to be overly aggressive by just looking at the visual statistics of the Consumer Price Index,” Siegel said. “If we look at the difference between inflation-protected bonds or nominal bonds, they are falling from their peaks,” he said, adding that inflationary pressures appear to have stabilized. determined.

Inflation-linked bonds have become popular this year, as investors look for a return to hedge against rising prices.

“I hope [Powell] recognize that the level of tightening that we have implemented and expect to apply between now and the end of the year – at least 100 basis points – is slowing the economy a lot,” added Siegel.

We added 3.2 million workers, but we had a GDP contraction like never before. This is an unprecedented drop in productivity, and it’s important. “

Jeremy Siegel

Professor at Wharton School of Business

Fed officials have made “no secret” about the size of the rate hike for the upcoming Federal Open Market Committee meeting – scheduled for September 20-21 – according to Reuters. report. One poll predicted a 50 basis point increase at the meeting.

Siegel said US money supply growth is evidence of an economic downturn, describing it as “one of the strongest recessions in history.”

Other key data, such as August nonfarm payrolls due next week, is something Siegel said he will be watching closely. The latest data is displayed July hiring soars, topping estimates and despite fears of a recession.

‘Productivity Collapse’

Siegel added that he is “disturbed” because there hasn’t been much discussion of what he calls a “productivity collapse,” calling it the biggest puzzle the Fed needs to tackle in its upcoming meetings.

“We added 3.2 million workers, but our GDP fell like never before,” he said. “This is an unprecedented drop in productivity, and it’s very important.”

“What are they doing? How many hours?” he say. “Are we misreporting? Are people working from home not really working from home?”

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