Wharton professor of finance Jeremy Siegel warns investors that the Federal Reserve most likely won't cut interest rates even though the central bank should.
“They should cut rates, but they won’t — not quite yet,” Siegel told CNBC. “I think they’re going to put out a directive that says in their next meeting which will be July 31st after the June meeting that they’re very likely to cut rates and I think the market will be satisfied with that,” he said.
Investors believe the chances of a Fed rate cut this year have dramatically increased in the last month, as President Donald Trump’s trade policies heightened fears that the U.S. economy will sink into a recession.
Markets are pricing in a 20% chance of a 25-basis-point cut at the June meeting, according to CME fed funds futures, with those odds jumping to 66% at the July meeting, CNBC explained.
“The Fed is very deliberate. Before they move, they like to make announcements and speeches. They haven’t really had a chance to really prepare those. We still could get a cut. There may be some dissents among the Fed officials saying I want to cut now, but I say the odds are a setup for a cut that will come at the end of July,” he said.
He doubts that any rate cut would stoke robust growth.
“The Fed is a little bit too slow,” he said. “There should be a 50-basis-point cut. Given where the 10-year [Treasury note] is right now, we should be below on the funds rate than the 10-year, and even 25 basis points won’t really put us below. So I really think there should be more,” he said.
“Right now projections are Q2 growth is 1.5%. That would be the slowest during the Trump presidency. … If the tariff clouds continue to gather in second half of the year, we may barely reach 2%,” he said. “Short term, it’s going to be hard to make big gains with the trade clouds and the interest rate clouds hanging over the market.”
Meanwhile, Vanguard now sees the chance of a U.S. recession in the next 12-18 months at 40%, up from 30%, and believes the Federal Reserve will implement an “insurance” interest rate cut as early as next week, the firm’s global chief economist Joe Davis said.
After a rate cut at the Fed’s June 18-19 meeting, Vanguard believes there will be “room for one more rate cut for the remainder of the year,” the company said in a client report, Reuters explained.
Vanguard, with over $5.4 trillion in assets under management, is one of the largest asset managers in the world.
© 2023 Newsmax Finance. All rights reserved.