Fonte. Business Insider.
The battle against high inflation is just about over, and that could give the Federal Reserve the green light to soon start cutting interest rates soon, according to Wharton professor Jeremy Siegel.
He pointed to the recent drop in inflation, with consumer prices increasing just 3.2% year over year in October, down from the 3.7% pace in September.
While that is still above the Fed’s 2% target, the latest figures are a promising sign that “it’s all clear on the inflation front,” Siegel said in an interview with CNBC on Wednesday.
“I really think the next move is going to be a cut, even if there isn’t a recession, just because we’re in a slowdown,” he said. “It could come as early, actually, as March of next year. I want [Powell] to un-invert this curve,” he added, referring to the 2-10 Treasury yield curve, the bond market’s classic recession gauge that flashes when short-term rates are higher than long-term rates.
The Fed has raised short-term interest rates 525 basis points over the past year, which Siegel previously warned could trigger a recession. The economy, though, has remained surprisingly resilient amid tighter financial conditions, with GDP surging 4.9% last quarter.
Some experts have warned markets of the dangers of easing monetary policy too early. Cutting rates prematurely could cause prices to surge down the line and potentially fuel a 1970s-style stagflationary crisis.
But financial conditions back then were completely different than today’s, Siegel said, as the Fed is no longer injecting liquidity into the market and has started to reduce the size of its balance sheet.
Central bankers have a bigger risk now of dialing back interest rates too late, he suggested, as the economy is already showing signs of slowing down. Job growth cooled in October, while retail spending dropped for the first time since March – a sign of potential weakness among American consumers.
Wall Street’s confidence over a soft-landing, though, has grown as inflation continues its descent. Goldman Sachs slashed its recession odds to just 15% next year. Bank of America previously saw a mild recession coming for the US economy but recently raised its outlook, adding in a note last week it saw the US heading for a soft landing.
