Wharton professor warns of potential recession if Fed doesn’t cut rates by September, predicts stock market difficulties ahead

Wharton professor warns of potential recession if Fed doesn’t cut rates by September, predicts stock market difficulties ahead

The recent warning from Wharton finance professor Jeremy Siegel about the potential risks to the economy and stock market if the Federal Reserve does not cut interest rates soon is a significant concern for investors and policymakers alike. Siegel’s argumentation is based on key economic indicators showing signs of a weakening economy, such as slowing GDP growth and a rise in unemployment.

Siegel points to the Sahm Rule, a recession indicator that tracks the rise in the unemployment rate above its cycle low, as a warning sign that the economy may be headed for a downturn. Combined with other indicators like the inverted Treasury yield curve and slowing money supply, Siegel makes a compelling case for the Fed to consider rate cuts to mitigate the risks of a recession.

The potential consequences of not cutting rates include a higher risk of recession and a negative impact on stock market performance. Investors have already priced in the expectation of rate cuts, and failure to deliver on that expectation could lead to further market volatility.

In reaffirmation of his argument, Siegel emphasizes the importance of Chairman Powell taking action at the upcoming Fed meetings in July and September to prevent a slowdown in the economy from turning into something worse. The forecasting of a 56% chance of a recession by next June by the New York Fed underscores the urgency for the Fed to act now.

Overall, Siegel’s warning serves as a clear signal to policymakers and market participants that proactive measures need to be taken to safeguard the economy and prevent a potential downturn. By considering the data and indicators presented by Siegel, the Fed can make informed decisions to support economic stability and sustained growth.