From CNBC, August 5:
- “The fed funds rate right now should be somewhere between 3.5% and 4%,” Wharton’s Jeremy Siegel said.
- The Federal Reserve kept interest rates at 5.25% to 5.5% after its meeting last week.
- On Friday, the jobs report showed slower growth than expected and an unemployment rate that moved higher to 4.3%, its highest since October 2021.
Wharton’s Jeremey Siegel on Monday called on the Federal Reserve to make an emergency 75 basis-point cut in the federal funds rate after Friday’s disappointing jobs report.
In addition, there should be “another 75 basis-point cut indicated for next month at the September meeting — and that’s minimum,” Siegel, professor emeritus of finance at University of Pennsylvania’s Wharton School, said on CNBC’s “Squawk Box” on Monday.
“The fed funds rate right now should be somewhere between 3.5% and 4%,” he said.
A basis point is 1/100th of a percentage point. A move by the Fed between meetings would be unusual, although not unprecedented.
The Federal Reserve kept interest rates at 5.25% to 5.5% after its meeting last week. On Friday, the jobs report showed slower growth than expected and an unemployment rate that moved higher to 4.3%, its highest since October 2021.
That unemployment figure “blew through” the central bank’s target unemployment rate of 4.2%, said Siegel, chief economist at WisdomTree. On top of that, inflation has gone down 90% towards the Fed’s target of 2%, he added.
“How much have we moved the fed funds rate? Zero,” he said. “That makes absolutely no sense whatsoever.”
After Siegel’s comments, Chicago Federal Reserve President Austan Goolsbee declined to comment on whether the central bank would make an emergency rate cut. However, if the economy deteriorates, the Fed will “fix it,” he said on “Squawk Box.”....
....MUCH MORE
In August 2's "Trump Fires BLS Chief. He’s Missing the Real Reason for the Big Change in Jobs Numbers." we called it "inter-meeting" rather than "emergency" and were thinking a half-point rather than 0.75% but the old boy definitely has the direction and urgency right. Here's the intro to that Aug 2 post:
Following on Reuters' August 1 report "US payrolls revisions jolt markets, making Fed look behind the curve" which focused on the revisions to prior releases rather than the not good 73K figure from the latest report.
And they were right to do so. What this means is for the last two Fed meetings the folks who sit at that beautiful table were informed by numbers that were incorrect, and dramatically so.
Based on the revisions the Fed should have lowered their target rate by a quarter point at the June 18 meeting after which Chair Powell said (CNBC):
“The U.S. economy has defied all kinds of forecasts for it to weaken, really over the last three years, and it’s been remarkable to see … again and again when people think it’s going to weaken out. Eventually it will, but we don’t see signs of that now”And based on the revised jobs number for June - 14,000 versus the initially reported 147,000, a greater than 90% decrease - the Fed should have cut the target by another quarter-point at the just concluded July 30 meeting.
My only quibble with the Reuters report is their headline; the Fed doesn't just look to be behind the curve, they are behind the curve and should immediately do an inter-meeting cut of a half-point.
Even that, because of the time lags between Fed actions and their effects in the real economy, would still leave the Fed behind the curve coming into the September meeting.