Jeremy Siegel: Rate Cut 'Fantastic' for Market
"This was the best news I’ve heard from the Fed in years," the WisdomTree economist says.
The Federal Reserve’s decision to lower its benchmark interest rate by half a percentage point is great news for the stock market and the economy, WisdomTree Senior Economist and Wharton School emeritus professor Jeremy Siegel said Thursday.
“This was the best news I’ve heard from the Fed in years and by the way, let me guarantee you an all-time high for the stock market today. There’s not going to be a back and forth the way there (was) yesterday,” Siegel said on CNBC’s “Squawk Box” before the market opened.
His prediction came true. The S&P was up about 1.7% in midafternoon trading Thursday — hitting its 39th record in 2024, according to Bloomberg. The Nasdaq 100 rose 2.8%.
The Fed’s rate-setting committee agreed Wednesday to lower interest rates to a 4.75% to 5% range — the first cut in over four years — after mounting an aggressive rate-hiking cycle to wrangle pandemic-driven inflation, followed by a 14-month pause.
Siegel also noted Fed Chairman Jerome Powell’s remark suggesting the central bank is recalibrating its policy stance.
“The word recalibration is extremely significant,” Siegel said, adding that the Fed already has seen a return to normal employment and is near its goals for inflation.
The financial markets now expect a 25-basis-point cut at every Fed meeting over the next six meetings through June, meaning the central bank would lower the federal funds rate 200 basis points to 3.33%, “which is where I think it should be,” Siegel said.
“This is fantastic news for the market and great news for the economy,” he said.
While the Fed sees 2.9% as its target fed funds rate in the long term, Siegel said he considers 3.5% more appropriate.
Powell on Wednesday told reporters the rate cut “reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labor market can be maintained in a context of moderate growth and inflation moving sustainably down to 2%.”
Siegel said he sees no signs of inflation picking up.
The WisdomTree economist, responding to a question about economic plans discussed in the U.S. presidential race, said, “All of them are extreme and none of them are going to be implemented.”
Siegel sees the election as close and predicted divided government, with neither party sweeping the White House, House and Senate, saying that’s what the market wants.
Jeremy Siegel. Credit: WisdomTree