Wharton Professor Siegel Challenges Market Expectations With Rate Cut Prediction As Inflation Cools

Zinger Key Points
  • Wharton professor Jeremy Siegel predicts a Fed rate cut this year due to economic slowdown and weaker inflation.
  • The March report eased investor concern, but Siegel warns of a potential severe fallout from the lending situation.

Wharton School Professor Jeremy Siegel predicts a Federal Reserve rate cut this year, citing concerns of an economic slowdown and weaker inflation.

What Happened: Siegel's comments come as the U.S. Labor Department reported a year-on-year headline Consumer Price Index (CPI) of 5% for March, down from 6% in February, and the lowest inflation reading since May 2021.

The figure was below economist estimates of 5.2%. On a month-over-month basis, the CPI rose by 0.1%, also lower than the expected 0.2%.

While core inflation remains high, potentially leading the Fed to maintain elevated interest rates for an extended period, the March report eased some investor concern.

Read Also: 5 Economists On March Inflation Data: Will The Fed Pause Interest Rate Hikes After May?

Siegel pointed out that the Fed's last projection in March indicated negative GDP growth for the second, third and fourth quarters, amounting to a recession. The professor argues that the fallout from the banking and lending situation could be more severe than anticipated, leading to a heavier decline on earnings in the short term.

“I don’t think [the Fed] recognizes how much tightening took place by the fallout from SVB and the lending situation,” Siegel said. “I’m still a very bullish long-term investor — but I’m more cautious on short-term than I’ve been for a long time.”

CME Group Fedwatch data currently suggests a 71.5% likelihood of a 25-basis-point raise in May.

Siegel's prediction challenges CME’s expectations, signaling a potential shift in the Fed's strategy amid economic uncertainties.

Read Next: EXCLUSIVE: Tim Quast Sees Markets' Long Sentiment Peaking, Predicts Declines Coming Shortly

Market News and Data brought to you by Benzinga APIs
Comments
Loading...
Posted In: Macro Economic EventsNewsTopicsEconomicsFederal ReserveMarketsMediaGeneralInflationInterest RatesJeremy SiegelWharton School
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!