Jeremy Siegel, Professor of Finance at Wharton Business School, stated that he believes the Fed has sufficient room to cut interest rates this year, despite geopolitical tensions in the Middle East and volatility in oil prices.
Appearing on CNBC’s “Squawk Box” program, renowned economist and WisdomTree Chief Economist Jeremy Siegel assessed the current state of markets and inflation. Siegel particularly highlighted the slowdown in housing costs and the protection provided by the US’s energy independence.
Siegel remains optimistic that inflation data may fall below expectations. Reminding that core inflation figures, closely monitored by the Fed, are determined by non-energy and non-food items, the professor highlighted the slowdown in housing costs, which carry the largest weight. Siegel stated, “Rent increases have almost stalled nationally for three years, and the Case-Shiller housing price index is at its lowest levels in recent years. This is putting significant downward pressure on inflation.”
Speaking cautiously about the timing of interest rate cuts, Siegel stated that many variables could change by mid-year. He specifically mentioned that the June meeting could be a critical turning point, adding that the Fed’s hand is not weak, but market uncertainties could affect the decision-making process.
While conflicts in the Middle East risk pushing oil prices to $120-150, Siegel argued that the US economy is far more resilient than in the past. He noted that the US is now a net energy exporter and that the energy intensity of the economy has decreased by 50% compared to the 1970s.
He also added that rising oil prices strengthened the dollar, which in turn lowered the prices of imported goods, thus playing a “stabilizing” role in combating inflation.
Despite all the optimism, Siegel acknowledges that the increase in gasoline prices will create political and economic pressure on consumers. Warning that every $2 increase in gasoline prices could steal between 0.8% and 1 percentage point from GDP growth, Siegel added that extreme scenarios, such as the closure of the Strait of Hormuz, could upset all balances.
*This is not investment advice.
