Tags: Jeremy Siegel | fed | rate hike | stock rally

Jeremy Siegel: Fed Rate Hike Could Spark Stock Market Rally

Jeremy Siegel: Fed Rate Hike Could Spark Stock Market Rally
Jeremy Siegel, professor of finance at the University of Pennsylvania (AP)

By    |   Wednesday, 16 September 2015 06:00 AM

Stock-market guru Jeremy Siegel, professor of finance at the University of Pennsylvania, believes the Federal Reserve will hike interest rates this week and cautions that the actual uncertainty surrounding the central bank’s decision is more harmful to the economy than the increase itself.

"Let's get it out of the way," he told CNBC in reference to a rate hike, although adding "it's a close call" whether the Fed will pull the trigger.

"Even if we get a 25 basis point increase with dovish language ... I think we could have a stock market rally," he said Tuesday. "I think they're going to come down dramatically for 2016."

Speculation has increased that the Fed will delay raising rates as China ignited concern that its slowdown could weigh on global growth, Bloomberg News reported.

While investors remain confident the central bank will increase borrowing costs this year, traders are pricing in just a 30 percent chance of action on Thursday, down from 48 percent before China’s currency devaluation last month. Odds of a move at the December gathering are about 59 percent, according to data compiled by Bloomberg.

"All those probabilities ... they are predicated on the assumption that the Fed will immediately move to the midpoint of the range of the Fed funds," Siegel said. "They may not. There is some indication they may stay at the low end of the Fed funds," which would mean the rate increase could be smaller than 25 basis points.

"I don't think the assumption that traders have not built in anything like a rate increase in is also an unwarranted assumption," he added.

To be sure, some prominent economic voices are warning that it's not the right time for a rate hike.

Former Treasury Secretary Larry Summers says hiking rates right now “doesn't seem like a prudent risk” that the Federal Reserve should take.

Data on the three topics the central bank cares about most (inflation, employment and financial stability) are all indicating the central bank should hold off on raising interest rates, he told CNBC.

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Stock-market guru Jeremy Siegel, professor of finance at the University of Pennsylvania, believes the Federal Reserve will hike interest rates this week and cautions that the actual uncertainty surrounding the central bank’s decision is more harmful to the economy than the increase itself.
Jeremy Siegel, fed, rate hike, stock rally
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2015-00-16
Wednesday, 16 September 2015 06:00 AM
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