Wharton Professor Jeremy Siegel believes the Federal Reserve is set to cut rates significantly in the second half of 2023, and that this could spark a big stock market rebound. He suggested that the Fed needs to ease up on their efforts to bring down inflation, as they risk pushing the economy into a recession.
The Federal Open Market Committee is expected to announce a 25 basis-point rate increase at their meeting this week. Siegel warned that if Chairman Jerome Powell chooses to raise interest rates by 50 basis points instead, it could be a disaster for investors.
“I don’t think rates are going to remain higher. I think they’re going to go down dramatically in the second half because of the weakening economy, the control over inflation,” Siegel said.
Siegel believes that if the Federal Reserve lowers its discount rate, the market is likely to accept a mild or moderate recession for a year, which is why he is still expecting the market to gain 10-15% from his forecast on January 2.
Siegel also said that earnings are expected to come in lower than last year but not necessarily near as low as people feared, due to the potential for a mild recession. He warned that any rate hike higher than 25 basis points could be a disaster.
On the other hand, Siegel suggested that the S&P 500 could surge by over 10% to around 4,500 points if the Fed promptly pivots to cutting rates and worker productivity improves. In the most recent installment of the “Behind the Markets” podcast, he gave the prediction.
0. “Wharton professor Jeremy Siegel warns the blowout US jobs report may be bad news for stocks – and could lead to a recession this year” Yahoo! Voices, 6 Feb. 2023, https://www.yahoo.com/finance/news/wharton-professor-jeremy-siegel-warns-103031106.html
1. “Jeremy Siegel Expects Rate Cut, Stock Surge in Second Half of 2023” ThinkAdvisor, 2 Feb. 2023, https://www.thinkadvisor.com/2023/02/02/jeremy-siegel-expects-rate-cut-stock-surge-in-second-half-of-2023
2. “Wharton professor Jeremy Siegel warns the Dow could drop 1,000 points ‘immediately’ if the Fed goes too big with its next rate hike” Yahoo Sports, 31 Jan. 2023, https://sports.yahoo.com/wharton-professor-jeremy-siegel-warns-214321599.html
3. “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
4. “Wharton professor Jeremy Siegel says a major Fed rate increase could send the Dow down 1,000 points, and ending the hikes could boost the S&P 500 by over 10%” Yahoo Canada Finance, 31 Jan. 2023, https://ca.finance.yahoo.com/news/wharton-professor-jeremy-siegel-says-143806289.html