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Wharton’s Jeremy Siegel on Monday called on the Federal Reserve to make an emergency 75 basis-point cut in the federal funds rate following Friday’s disappointing jobs report.
Key Points
- Siegel’s Recommendation:
- An immediate 75 basis-point cut
- Another 75 basis-point cut at the September meeting
- Current Fed Rate:
- The Federal Reserve kept interest rates at 5.25% to 5.5% after its meeting last week.
- Jobs Report Impact:
- The report showed slower growth than expected.
- Unemployment rate rose to 4.3%, the highest since October 2021.
- Siegel’s Analysis:
- The unemployment figure surpassed the Fed’s target of 4.2%.
- Inflation has decreased by 90% towards the Fed’s target of 2%.
- Fed’s Response:
- Chicago Federal Reserve President Austan Goolsbee did not comment on an emergency rate cut but stated that the Fed will address economic deterioration if necessary.
Historical Context
- Previous Emergency Cut:
- In early 2001, Fed Chair Alan Greenspan made an emergency 50 basis-point cut, leading to a sharp market rally.
- Siegel’s Prediction:
- Siegel believes the market will respond positively to the rate cuts.
- He warned that if the Fed delays the cuts, the market will react negatively.
Conclusion
Siegel’s urgent call for an emergency rate cut underscores the need for swift action to address economic concerns. The market’s reaction to the Fed’s decisions will be closely watched in the coming weeks.