Wharton Professor Siegel Challenges Market Expectations With Rate Cut Prediction As Inflation Cools

Wharton School Professor Jeremy Siegel predicts a Federal Reserve rate cut this year, citing concerns of an economic slowdown and weaker inflation.

What Happened: Siegel's comments come as the U.S. Labor Department reported a year-on-year headline Consumer Price Index (CPI) of 5% for March, down from 6% in February, and the lowest inflation reading since May 2021.

The figure was below economist estimates of 5.2%. On a month-over-month basis, the CPI rose by 0.1%, also lower than the expected 0.2%.

While core inflation remains high, potentially leading the Fed to maintain elevated interest rates for an extended period, the March report eased some investor concern.

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Siegel pointed out that the Fed's last projection in March indicated negative GDP growth for the second, third and fourth quarters, amounting to a recession. The professor argues that the fallout from the banking and lending situation could be more severe than anticipated, leading to a heavier decline on earnings in the short term.

“I don’t think [the Fed] recognizes how much tightening took place by the fallout from SVB and the lending situation,” Siegel said. “I’m still a very bullish long-term investor — but I’m more cautious on short-term than I’ve been for a long time.”

CME Group Fedwatch data currently suggests a 71.5% likelihood of a 25-basis-point raise in May.

Siegel's prediction challenges CME’s expectations, signaling a potential shift in the Fed's strategy amid economic uncertainties.

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