Economist Jeremy Siegel: "The fight against high inflation is about to end"

Andrei Iacomi
English Section / 20 noiembrie

Economist Jeremy Siegel: "The fight against high inflation is about to end"

Versiunea în limba română

"The Fed can cut interest rates as early as March next year"

The fight against high inflation is about to end, which may give the Federal Reserve the green light to start cutting interest rates, says renowned economics professor Jeremy Siegel, quoted by Business Insider.

Siegel pointed to the recent deceleration in U.S. inflation, with consumer prices rising 3.3 percent in October from September's 3.7 percent. "Although still above the Fed's 2% target, the latest numbers are a promising sign that everything is clear on the inflation front," the economist said in an interview on CNBC and picked up by Business Insider.

"Even if there won't be a recession, I think the next move will be a reduction (n.r. of the interest rate), because we are in a period of (n.r. economic) slowdown. It may come as early as March next year. I want Powell to reverse the curve inversion," Siegel said, referring to the two- to 10-year Treasury yield curve, which is considered to herald a recession when short-term yields are higher than long-term yields.

Over the past year, the Fed has raised short-term interest rates by 525 basis points, a move that Siegel has previously said could trigger a recession. Still, the economy remained surprisingly robust, with US GDP growing 4.9% last quarter, according to Business Insider.

On the other hand, other economists warn of the dangers of easing monetary policy too quickly. A premature rate cut can cause prices to rise, fueling a stagflationary crisis similar to that of the 1970s. But Siegel says financial conditions back then were completely different from today, as the Fed stopped injecting liquidity into the market and began to reduce the balance sheet.

In his view, cutting rates too late poses a greater risk now for central bankers as the economy is already showing signs of slowing. Job growth moderated in October, while retail spending fell for the first time since March - a sign of weakness among American consumers, according to Business Insider.

But Wall Street's confidence in a soft landing for the economy has grown as inflation continues to decline. Goldman Sachs has cut its estimate of the likelihood of a recession next year to just 15%. Bank of America was seeing a mild recession for the US economy, but recently said in a note that it expects a soft landing, according to the US publication.

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