Hike rates

Fed only needs to raise rates another 100 basis points, says Siegel

  • The Federal Reserve only needs to raise interest rates another 100 basis points in this tightening cycle, Wharton professor Jeremy Siegel told CNBC on Friday.
  • The economy is already showing signs of slowing with the four rate hikes announced so far this year, he said.
  • The Fed’s favorite inflation gauge, the core PCE, was weaker than economists expected for July.

The Federal Reserve needs to raise its benchmark interest rate by just another 100 basis points to achieve its goal of cooling the US economy to reduce high inflation, Wharton professor Jeremy Siegel said Friday on CNBC.

“I think we only need 100 basis points more,” Siegel said hours before Federal Reserve Chairman Jerome Powell delivered a speech on monetary policy at the bank’s symposium. powerhouse in Jackson Hole, Wyoming. Powell was scheduled to speak at 10 a.m. Eastern Time.

“The market thinks it will be a bit more – 125, 130 basis points more. I feel like we won’t need it because of what I see as a downturn,” Siegel said.

The Fed is expected to make its fifth rate hike of 2022 in September. The fed funds rate is currently in a range of 2.25% and 2.75% after starting the year with the bottom of the range at 0 %.

“I hope that [Powell] recognizes that the degree of tightening that we have put in place and are expected to put in place by the end of the year, of at least 100 basis points, is significantly slowing the economy,” said Siegel, whose the books include “Stocks for the Long Term: The Definitive Guide to Financial Market Returns and Long-Term Investing Strategies.”

The Fed should focus on assessing forward-looking data such as house prices “on the ground” because those “are actually starting to fall,” Siegel said.

The consumer price index is retrospective data. “We know the way this index is constructed, housing costs, which are a big driver of underlying inflation, lag far behind in how they’re factored into the index.”

The Fed remains far from its inflation target of 2%. On Friday, the central bank’s favorite gauge of inflation, the core personal consumption expenditures price index, or PCE, hit a year-over-year rate of 4.6% in July and rose 0, 1% month-on-month. The reading was smoother than expected, with Econoday consensus estimates at 4.7% and 0.3%, respectively.

The core CPI in July was 5.9% and the headline inflation rate which includes energy and food prices was 8.5%, compared to 9.1% in June.

This week, the second quarter gross domestic product reading was revised to show a contraction of 0.6%, weaker than the 0.9% contraction in the preliminary reading.