Alert: Professor Jeremy Siegel changes his mind. “The Fed should lower rates.”
Professor Siegel nailed the Covid inflation calls and has been extremely accurate since. He’s not a annual recession caller, so one must consider as a base case that we will enter into a recession shortly unless the Fed lowers rates and/or the Tariff issues are satisfactorily implemented soon.
Siegel’s Main Viewpoints on the Fed and Economy
- Interest Rates Should Be Cut:
- Siegel strongly argues that the Federal Reserve should lower interest rates.
- Economic indicators—especially long-term inflation expectations—do not justify keeping rates high.
- He references the “5-year, 5-year forward inflation rate” (a Fed-watched metric), which is low and even falling, showing no inflation risk.
- Short-Term Inflation vs. Long-Term Stability:
- Tariffs (the “Trump bump”) might cause short-term inflation, but long-term expectations remain stable or declining.
- This is not the kind of inflation that should worry the Fed.
- Money Supply Is Too Low:
- The M2 money supply is growing under 4%, below the healthy 5–6% range.
- Without increased money and loan growth, the economy could slow down—cutting rates would help stimulate both.
- Fed Independence Under Threat:
- Political pressure on the Fed is growing.
- Siegel believes cutting rates would actually protect the Fed’s independence, by avoiding a recession that would otherwise lead to blame from politicians like Trump.
- Yield Curve & Mixed Signals:
- The yield curve had previously been inverted (a classic recession signal), then flattened.
- Based on the term structure, Siegel thinks the current Fed funds rate should be ~3.3%, not 4.3%.
💡 Final Thoughts
- Key risks right now are economic slowdown and credit stagnation, not inflation.
- Siegel believes the Fed should start cutting in May and continue into June.
- He criticizes past Fed actions for enabling excessive fiscal spending, but insists that current conditions clearly call for easing.