Stock-market guru Jeremy Siegel, professor of finance at the University of Pennsylvania, predicts that the recent volatility will likely deter the Fed's interest-rate hike plans.
After voting to raise its interest rate target in December, the central bank indicated it could move four more times this year. But Siegel believes a tumultuous market, driven by a "deflationary wave," will cause the Fed to delay, CNBC
"The Fed is basically going to be on hold going forward. We're not going to see those hikes unless things really normalize," the Wharton School finance professor said at the ETF.com Inside ETFs conference in Hollywood, Florida.
"It is the deflationary wave that is the major source of problems," Siegel said.
Fed policymakers meet on Tuesday and Wednesday for the first time since raising interest rates in December. Roughly $2.5 trillion of stock market value wiped out in the past three weeks and a possible consumer pullback could throw the Fed off its course of gradual interest rate hikes, Reuters
Policymakers continue to argue that the threat will pass, but the risk that the selloff will hit the main engine of U.S. economic growth — household spending — gets bigger the longer markets remain depressed.
Fed research and other studies estimate that up to 6 percent of any drop in household net worth gets passed through and results in less spending. It means that unless the market recovers soon, upwards of $150 billion in consumption will be lost in coming months — a drag of close to 1 percent of gross domestic product.
However, Newsmax Finance Insider Hans Parisis
disagrees, forecasting four rate hikes.
“I think investors shouldn’t be surprised if the Fed would stick to its planned four rate hikes of 0.25 percent each for this year, which would really surprise the markets,” he predicts. “I personally do not expect the FOMC to signal they will place their planned rate hikes for 2016 on hold.”
(Newsmax wire services contributed to this report).
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