Wharton’s Jeremy Siegel called for an emergency 75 basis-point cut in the federal funds rate on Monday, following Friday’s disappointing jobs report. Siegel, a professor emeritus of finance at the University of Pennsylvania’s Wharton School, also suggested that the Federal Reserve should indicate another 75 basis-point cut for September, at a minimum.
“The fed funds rate should currently be between 3.5% and 4%,” Siegel said during an appearance on CNBC’s “Squawk Box.”
A basis point is 1/100th of a percentage point. While an emergency rate cut by the Fed would be unusual, it’s not without precedent.
After last week's meeting, the Federal Reserve maintained interest rates at 5.25% to 5.5%. Friday’s jobs report revealed slower-than-expected growth and an increase in the unemployment rate to 4.3%, its highest since October 2021. This rate exceeded the Fed’s target of 4.2%, and inflation is down 90% towards the Fed’s 2% goal, according to Siegel, who is also chief economist at WisdomTree.
Siegel criticized the Fed for not adjusting the rates despite these developments, saying, “How much have we moved the fed funds rate? Zero. That makes absolutely no sense whatsoever.”
In response to Siegel’s remarks, Chicago Federal Reserve President Austan Goolsbee did not comment on the possibility of an emergency rate cut but stated that the Fed would address economic deterioration if necessary.
Siegel expressed confidence that an emergency rate cut would boost the market, citing a previous instance in early 2001 when Fed Chair Alan Greenspan made an emergency 50 basis-point cut, which led to a sharp market rally.
He cautioned against assuming the Fed has superior economic insights, arguing, “The market knows so much better than the Fed. They’ve got to respond.”
Siegel warned that if the Fed doesn’t make an emergency cut before September’s meeting, the market could react negatively. “If they are going to be as slow on the way down as they were on the way up, which was the first policy error in 50 years, then we’re not in for a good time with this economy.”
