Why Wharton's Jeremy Siegel Thinks Jerome Powell Has 'Sort Of Made Up His Mind' On A Pause In June

As economists drum up warnings of a recession, one has suggested a way out of the predicament and offered his take on the rate outlook.

What Happened: The market has loved the talk around a pause or a skip and has rallied in response, said Wharton Professor Jeremy Siegel in an interview with CNBC on Thursday.

Siegel has been warning about the Federal Reserve going too far with its rate hikes and the delayed effects of monetary policy leading to a downturn in the second half of the year. “If they can pause now, this lowers the probability we are going to have a recession,” he said.

Is The Fed Done? The central bank is completely data-dependent, Siegel said. He also expressed surprise about Fed Governor Thomas Jefferson‘s and Philadelphia Fed President Patrick Harker‘s talk of a pause ahead of Friday's non-farm payrolls data.

“I think that was sort of encouraging. I think that means that [Jerome] Powell sort of made up his mind with the staff, ‘Hey! This is a time for a pause,'” the professor said. Siegel, however, did not rule out the possibility of dissenting voices and threw in Cleveland Fed President Loretta Mester's name as a potential dissenter. “We may get our first dissent in a year and a half at the next meeting,” he added.

“But nonetheless, what the chairman wants, the chairman gets,” he said.

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Swoon Or Surge: When asked whether there would be a swoon or surge in the market this summer, Siegel said he thinks the rates are too high to sustain good employment. “Sometimes, we're going to see a downturn in payroll growth to a negative number,” he said.

The professor added that he sees the number giving everyone a little bit of scare.

While saying that the market would still go up for the year, Siegel said a surge isn't likely to be in the works. Artificial intelligence stocks could, however, go much higher, he said. “These sectors can catch fire and that can continue through the summer,” he added.

The Wharton professor said he does not think that AI stocks are bubbles, as they have real earnings behind them. “To me, a bubble is a stock that's four or five times above its fundamental value. I don't think we're anywhere near that,” he said.

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Photo: Brookings Institution via flickr