EXCLUSIVE: Wharton Professor Jeremy Siegel Says There's Only One Indicator Left Standing Between The Federal Reserve And A Pause

Zinger Key Points
  • We need to see payroll losses in order for the Fed to turn its head, Jeremy Siegel tells Benzinga.
  • The Fed on Wednesday raised its benchmark rate by 0.25%, marking the central bank's second consecutive policy downshift.

Wharton Professor of Finance Jeremy Siegel has been beating the drum on inflation in recent months, urging the Federal Reserve to cast aside lagging indicators.

Now that consumer prices are coming down, he says there's only one indicator left standing between the Fed and a pause. 

"I did not expect the labor market to continue to hold up as well as it is," Siegel said Thursday on Benzinga's PreMarket Prep.

What To Know: The number of Americans filing new claims for unemployment insurance cratered to a nine-month low Thursday morning. 

The Labor Department said jobless claims fell by 3,000 for the week ending Jan. 28 to 183,000. The number was well below average economist expectations of 200,000, according to Benzinga Pro.

"No break there at all," Siegel emphasized. 

New data from this week showed that private sector employment increased by 106,000 jobs in January, down from an upwardly revised 253,000 the month before.

"I mean that's half the rate that we had last year so that is a decline," Siegel said: "But I really think [the Fed won't pause] until we get an actual negative number of payroll jobs."

We need to see payroll losses in order for the Fed to turn its head and say "wow, maybe we should really pause for a while and really see how this plays out," Siegel said. 

The economist told Benzinga that he's still anticipating a negative payroll print in the near future, but he noted that he's surprised the labor market has remained as "drum tight" as it has. 

Check This Out: EXCLUSIVE: Why Jeremy Siegel Says Fed Could Lower Interest Rates In 2023, Powell Is 'Off Target'

Why It Matters: The Fed on Wednesday raised its benchmark rate by 0.25%, marking the central bank's second consecutive policy downshift. At its last meeting, the central bank opted for a 0.5% hike, which was preceded by four straight 0.75% rate hikes.

The Committee said it anticipates that ongoing increases in the target range will be appropriate to bring inflation back down to its 2% goal. 

Following the decision on rates, Fed Chair Jerome Powell said the committee has "no incentive and no desire to over tighten." Still, he reaffirmed that the Fed believes there is still "a lot of work left to do."

Siegel told Benzinga that Powell is "off target" with his approach.

"He admits himself that monetary policy works with a lag and a lot of the effect of the tightness is yet to be felt," Siegel said.

The bond market is currently projecting an 85.6% chance of a subsequent 0.25% hike in March and a 14.4% chance of a pause, according to CME Group data

See the full interview with the Wharton professor below:

SPY Price Action: The SPDR S&P 500 SPY rallied on Wednesday after Powell came across dovish in the press conference following the decision on rates.

The SPY is continuing to move higher Thursday, up 1.31% at $416.16 at the time of writing, according to Benzinga Pro.

Photo: from PreMarket Prep.

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