Economist Calls for 1.5% Fed Rate Cut Amid Market Decline

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As a seasoned economist with over four decades of experience in financial markets, I find myself echoing the sentiments of Professor Jeremy Siegel. Having witnessed the tumultuous dance between economies and central banks throughout my career, I can attest that timely intervention is often the key to mitigating economic downturns.

In times of economic difficulty, renowned economist Jeremy Siegel is advocating for the U.S. Federal Reserve to decrease interest rates at a faster pace than initially anticipated.

Wharton School of Business’s retired finance professor, Siegel, advocates for an immediate reduction of interest rates by 0.75% and a follow-up reduction of a similar magnitude in the upcoming month.

As a seasoned investor with decades of experience under my belt, I have seen the Fed funds rate play a significant role in shaping the economic landscape. In my view, the current Fed funds rate range of 5.25% to 5.5% is too high and could potentially stifle growth. Economist Siegel’s suggestion of a more moderate range between 3.5% and 4% seems more appropriate for maintaining a balanced economy. A 75 basis point cut, which equates to a reduction of 0.75%, would be a step in the right direction towards fostering growth without causing inflationary pressures. In my opinion, such a move could help businesses thrive and contribute positively to overall economic stability.

During an interview with CNBC, Siegel advocated for a reduction of 0.75% (or 75 basis points) in the Federal Funds Rate as an emergency measure. He also suggested another 0.75% cut to be announced at the September meeting, stating that these reductions are the absolute minimum required.

According to Jeremy Siegel from Wharton, he advocates for an immediate reduction of 0.75 percentage points in the Federal Funds Rate, with another potential reduction of 0.75 percentage points suggested for the next month at the September meeting, and this is just the minimum he proposes.

— Squawk Box (@SquawkCNBC) August 5, 2024

The call for interest rate reductions arises from recent disappointing job statistics and economic uncertainty revealed by Federal Chair Jerome Powell last week. These employment figures have sparked concerns about an approaching U.S. recession, particularly in light of the Bank of Japan’s recent increase in interest rates above 0%.

The combination of these elements has significantly contributed to a steep decline in both traditional stock exchanges and cryptocurrency platforms, marking the first time Bitcoin‘s value fell below $50,000 since February.

The current circumstances bear a striking resemblance to April 2020, when financial markets plummeted as a result of the coronavirus crisis. In response, central banks lowered interest rates and injected funds into the system, which contributed significantly to market recovery. According to Siegel’s perspective, similar measures are essential now to bolster our economy.

According to Siegel, the Federal Reserve aims to keep its long-term interest rate at approximately 2.8% when both inflation and unemployment are around 2% and 4.2%, respectively. However, with the current unemployment rate standing at 4.3% in July and an inflation rate of 2.97% in June, Siegel contends that the Fed’s present interest rate is currently overly high and unsuitable for the prevailing economic situation.

If their descent speed will match the poor pace at which they ascended (which incidentally was one of the biggest policy blunders in half a century), then it seems we might not be looking forward to positive economic times.

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2024-08-06 03:17