In a recent interview with CNBC, Wharton finance professor Jeremy Siegel raised concerns about the potential impact on the stock market and economy if the Federal Reserve doesn’t cut interest rates soon.
Siegel pointed to a variety of signals indicating a weakening economy, such as slowing GDP growth and rising unemployment rates. He particularly highlighted the potential trigger of a recession indicator known as the Sahm Rule, which calculates a downturn when the three-month moving average of the unemployment rate rises 0.5 percentage points above its cycle low. With the indicator already at 0.43, the risk of a recession is becoming more apparent.
Additionally, Siegel mentioned other warning signs, including the inverted Treasury yield curve and slowing money supply, which further support the case for interest rate cuts. He emphasized the importance of Chairman Powell signaling a cut in the upcoming Fed meetings to prevent the slowing economy from worsening.
The uncertainty surrounding a potential recession has divided forecasters, with the New York Fed estimating a 56% chance of a downturn by next June. Siegel highlighted the importance of rate cuts not only for the economy but also for the stock market, as investors have been anticipating cuts throughout the year.
As investors await the Fed meetings at the end of July, upcoming economic data releases will play a crucial role in determining the direction of rate cuts. The consumer price index data, set to release soon, will provide valuable insights into whether high rates are necessary to control inflation.
With the economy at a tipping point, it’s essential for investors to stay informed about the latest developments and potential impacts on their investments. Stay tuned for more updates on economic indicators and rate cut decisions to make informed investment decisions in the current market climate.
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