Tags: jeremy siegel | fed | slowdown | rate | cut

Jeremy Siegel: Fed Can Avoid Slowdown With 1 More Rate Cut

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By    |   Thursday, 19 September 2019 03:57 PM

Wharton School professor Jeremy Siegel warns that the U.S. economy will suffer a big slowdown if the Federal Reserve doesn’t cut interest rates further this year.

The Fed on Wednesday delivered a widely expected interest rate cut aimed at sustaining a record-long economic expansion, but gave few hints of whether or when it could reduce borrowing costs further.

New projections showed policymakers at the median expected rates to stay within the new range through 2020.

However, in a sign of ongoing divisions within the Fed, seven of 17 policymakers projected one more quarter-point rate cut in 2019. Five others, in contrast, see rates as needing to rise by the end of the year. The divisions were reflected in dissents that came from both hawks and doves. St. Louis President James Bullard wanted a half-point cut while Boston Fed President Eric Rosengren and Kansas City Fed President Esther George did not want a rate cut at all.

 “I agree completely with” Bullard, who has advocated for a 50 basis point cut, Siegel told CNBC.

The central bank should bring the fed funds rate down at least another 25 basis points, Siegel said.

The reason Siegel would like to see a deeper cut from the central bank is because he’s concerned about the fed funds rate being higher than the 10-year Treasury yield, which was around 1.76%. The Fed said it would lower its benchmark overnight lending rate to a target range of 1.75% to 2%, from 2% to 2.25%.

“Fed funds and the 10-year is still inverted,” Siegel said. “We should bring down that fed funds rate at least another 25 basis points. ... We got to normalize the curve.”

Siegel doesn’t expect that there will be a recession but said that there will be a “significant slowdown.”

The Fed can avoid that with one more rate cut, he said.

“I know some of the [economic] data has been decent,” Siegel said.

However, the trade war between the United States and China has plunged global growth to its lowest levels in a decade, the OECD said on Thursday as it slashed its forecasts.

The Organisation for Economic Cooperation and Development said that the global economy risked entering a new, lasting low-growth phase if governments continued to dither over how to respond.

The global economy will see its weakest growth since the 2008-2009 financial crisis this year, slowing from 3.6% last year to 2.9% this year before a predicted 3.0% in 2020, the OECD said in its report.

The Paris-based policy forum said the outlook had taken a turn for the worse since it last updated its forecasts in May, when it estimated the global economy would grow 3.2% this year and 3.4% in 2020.

"What looked like temporary trade tensions are turning into a long-lasting new state of trade relationships," OECD chief economist Laurence Boone told Reuters.

"The global order that regulated trade is gone and we are in a new era of less certain, more bilateral and sometimes assertive trade relations," she added.

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Wharton School professor Jeremy Siegel warns that the U.S. economy will suffer a big slowdown if the Federal Reserve doesn’t cut interest rates further this year.
jeremy siegel, fed, slowdown, rate, cut
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2019-57-19
Thursday, 19 September 2019 03:57 PM
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