The Federal Reserve is expected to raise its benchmark rate by a quarter of a percentage point next week. However, Wharton School Professor Jeremy Siegel is urging the institution to reconsider its tightening policy amid ongoing concerns over the impact on the banking industry.
What Happened: While inflation remains high, Siegel argues that the Fed's rate hikes are starting to show their effect. "I hope that this knocks some reality into the Fed and chairman Powell," Siegel said in a Wednesday CNBC interview, noting the historical significance of the SVB collapse.
"Every recession in the last 50 years has followed an inversion – something blows up, something goes wrong," the Professor said.
Read also: PPI Inflation, February Retail Sales Data Raise Market Expectations For Fed Pivot
Siegel's comments come as analysts call for the Fed to halt rate increases due to recent turmoil in the banking sector. The professor suggests that the Fed's tightening policy may be too aggressive, saying that they have been "way too tight" for the past six to nine months.
Taking into account the financial climate, Siegel proposes that the Fed might want to consider pausing its tightening efforts.
He said the futures market is signaling a potential shift in monetary policy, with the possibility of a single 25-basis point increase followed by a decline.
Regarding the Fed's upcoming meeting, Siegel said the 25-basis point increase will come, but the Fed may hint at a pause on future increases. "They won't commit to a pause," he said, "but they're going to say we're beginning to see good progress on that inflation front."
Siegel emphasized the effects of the Fed's monetary tightening have yet to be fully realized, and given the current financial climate and associated risks, it may be time to reconsider the pace of rate hikes.
"We could afford to pause in our tightening," he added. "I think the language is going to be totally different from the language we have after the last meeting."
Photo: The World Affairs Council on flickr and Shutterstock
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