Siegel Warns of a Potential Economic Disaster if Fed Rate Hike is Too High
By With the Federal Open Market Committee meeting looming this week, Jeremy Siegel, an economics professor at the Wharton School, warned of a potential economic disaster if the Fed goes ahead with a rate hike higher than expected.[0]
Siegel said that inflation was falling rapidly, and that officials needed to soften policy to avoid a recession.[0] He predicted that the Fed should not exceed a 25 basis-point rate increase, as a higher increase could be “a disaster”.
The 425 basis-point rate hike last year was an effort to control inflation, but critics argue that the central bank is in danger of overdoing it and pushing the economy into a recession.[0] Others have argued that the Fed needs to keep a vigilant eye on prices to avoid a rebound in inflation, but Siegel believes that the shrunken money supply should prevent this from happening.[1]
Overall, with so much bearishness in the market, any good news such as the inflation news is seen in a positive light.[2] It remains to be seen what the Fed will decide when they meet this week, and whether their decision will be a disaster or a boon for the economy.
0. “Wharton professor Jeremy Siegel says the Fed risks sparking a disaster if it hikes rates higher than markets a” Business Insider India, 30 Jan. 2023, https://www.businessinsider.in/stock-market/news/wharton-professor-jeremy-siegel-says-the-fed-risks-sparking-a-disaster-if-it-hikes-rates-higher-than-markets-are-expecting-at-its-upcoming-meeting/articleshow/97454517.cms
1. “The Fed risks sparking a disaster, Wharton's Jeremy Siegel says” Markets Insider, 30 Jan. 2023, https://markets.businessinsider.com/news/stocks/jeremy-siegel-recession-warning-fed-inflation-disaster-interest-rate-hikes-2023-1
2. “Fed Must Do 2 Things To Maintain S&P 500 Rally Or ‘No Way That Stocks Are Going to Make It': Jeremy Siege” Benzinga, 29 Jan. 2023, https://www.benzinga.com/news/23/01/30615269/fed-must-do-2-things-to-maintain-s-p-500-rally-or-no-way-that-stocks-are-going-to-make-it-jeremy-sie
