Tags: Siegel | June | Fed | rates

Jeremy Siegel: 'June Is Too Soon' for Fed to Raise Rates

By    |   Tuesday, 17 February 2015 10:22 AM

As Federal Reserve officials increasingly indicate a desire to begin raising interest rates around mid-year, Jeremy Siegel, professor of finance at University of Pennsylvania, offers a note of caution.

"I personally think that is too soon," he tells CNBC referring to a June starting point. "Everyone talks about how strong the employment reports are, the payroll reports. What they're not talking about is how amazingly weak GDP growth is in light of this strong employment."

Non-farm payrolls rose by a larger amount in the past three months than any other such period in the last 17 years. Meanwhile, the economy grew 2.4 percent in 2014, its strongest expansion since 2010.

"We've just had terrible productivity growth. We are trying to explain it. That concerns me a little bit," Siegel notes. Productivity fell an annualized 1.8 percent in the fourth quarter.

"I think it would be premature for the Fed to say everything's fine," he argues, adding that given current data, the Fed should wait until the end of summer to raise rates.

"I want to see growth better. I don't want to see the dollar continuing to rise because there are some economists that estimated the dollar increase — that negative effect on exports — offsets a lot of the good effect of lower oil prices and gasoline prices," Siegel adds.

"It's great the dollar is going up. We buy cheaper stuff abroad. It shows the promise of the U.S., but that does have economic effects."

Meanwhile, David Kotok, chief investment officer of Cumberland Advisors, isn't too impressed with the calls by some Republicans in Congress to audit the Fed. "The clamor to audit the Fed is an example of senators talking out of both sides of their mouths," he writes an article for Barron's.

"They want to audit the Fed? Perhaps they should start by auditing the United States Senate, where the ratio of misleading political blustering to rational and constructive action confirms that we are suffering a national political intelligence deficit of alarming proportions."

The idea that we need to audit the Fed implies that the Fed's presentation of its balance sheet is inaccurate, Kotok notes. It announced last week that the balance sheet totals $4.5 trillion.

"That notion is absurd," he states. "When it comes to accounting issues, the Fed is already audited just like any arm of the federal government. In fact, the Fed is an arm of the government with 100 years of history and is a creature created by act of Congress."

Bottom line: "Audit the Fed is a farce," Kotok argues. "Its proponents know it."

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As Federal Reserve officials increasingly indicate a desire to begin raising interest rates around mid-year, Jeremy Siegel, professor of finance at University of Pennsylvania, offers a note of caution.
Siegel, June, Fed, rates
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2015-22-17
Tuesday, 17 February 2015 10:22 AM
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