Professor Jeremy Siegel's Expectations for the Federal Reserve Meeting

Jeremy Siegel, a finance professor at the University of Pennsylvania's Wharton School of Business, shared his insights on the upcoming Federal Reserve meeting, predicting a rate cut with a "hawkish" undertone.

During an appearance on CNBC's “Squawk Box,” Siegel offered his assessments regarding the market's anticipation of the Fed's decision, the potential nominee for the next Fed chair, and the future trajectory of interest rates.

Siegel anticipates that the Federal Reserve will implement a 25 basis point interest rate cut this week. However, he predicted that this decision would not be unanimous. "I call it a 'hawkish cut' because I think there will be objections from both sides," Siegel stated.

The distinguished professor pointed out that Fed Board Member Mester might advocate for a more substantial 50 basis point cut, while two or three other members could vote to maintain current interest rates. Siegel elaborated, "If that's the case, this could be the most dissenting opinion in Jerome Powell's nearly eight-year tenure as chairman."

Siegel also discussed the candidacy for the next Federal Reserve President, a position that will be announced by US President Donald Trump at the beginning of the next year. He noted that Kevin Hassett has emerged as a prominent name in consideration.

"The probability that Kevin Hassett will be the next Fed chair is currently around 70 percent," Siegel remarked. "Even if his name isn't officially announced, Hassett's rhetoric will start to move markets much more than it has in the past." Siegel also mentioned his past collaboration with Hassett on John McCain's campaign, describing him as a "fantastic economist."

Speaking cautiously about the potential impact of interest rate cuts on the bond market, Siegel indicated that he does not foresee a significant decrease in long-term interest rates.

Siegel elaborated on his analysis, stating, "Looking at the last 75 years, we see that the Fed funds rate has been approximately 100 basis points below the 10-year bond yield. Currently, 10-year yields are at 4.15%, meaning the Fed rate could fall below 3%. However, this may not significantly lower long-term interest rates, and therefore mortgage rates."

Despite these considerations, Siegel believes that interest rate cuts will provide a boost to the economy. He explained, "Over $15 trillion in loans are directly tied to the Fed funds rate. Short-term borrowings like vehicle loans, inventory financing, and credit card interest will be directly affected. This will definitely stimulate the economy."

Siegel added that despite concerns surrounding tariffs, the economy is currently performing well, and there has been no notable slowdown in sales.