Wharton's Jeremy Siegel Says 'YOLO' Consumers Driving Economy But Warns 'This Could Be One Of Last Good Stretches'

The revised first-quarter GDP growth and a few other data points released recently show that the economy has been chugging along fairly well despite the uncertainties. But an economist cautions the strength could be a thing of the past.

What Happened: The economy looks like it is progressing smoothly, with resilient consumer remaining immune to the impact of the higher borrowing costs, said Wharton professor Jeremy Siegel in WisdomTree's weekly commentary.

"It is the ‘YOLO' (you only live once) consumer out traveling and enjoying the summer, " the economists said. But he cautioned of the trajectory going forward.

"But also, this could be one of the last good stretches for the economy before the summer ends and credit card bills come due—then we go back to school and September to October have been times of some dicey periods for the markets."

The economist said it would be a mistake if the Federal Reserve allowed the job market to turn down significantly before it stops hiking and starts easing.

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Siegel conceded that he did not expect the job market and the real economy to be as strong as they have been, considering the fact that real interest rates increased significantly and liquidity has declined.

"Yet I do not think the second half of the year will be a great time for the markets," he said, adding it isn’t likely to deteriorate dramatically either. He sees a battle in the market dynamics between recession fears and a slowdown. The Fed will likely respond by bringing in more accommodation and lowering rates, he added.

Why It's Important: After pausing in June, the Fed is widely expected to raise the Fed fund rate when the monetary-policy setting of the arm meets later this month. The futures market has begun pricing in a 94.9% probability of a 25 basis point hike to 5.25%-5.50%.

But a section of the analysts are optimistic the June consumer price inflation will surprise to the downside and prices will continue to trace a downward trajectory in the months to come. This could provide leeway for the Fed to drop its hawkish stance.

Siegel said, "Clearly there are more hawks than doves at the Fed, even though I still believe the Fed should pause hikes and monitor the cumulative impact of the tightening already in place."

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