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Dan Loney: And a pleasure to
welcome to our show, as always, Wharton Emeritus Professor of
Finance, Jeremy Siegel, who is
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also chief economist at
WisdomTree. Jeremy, will be joining us on the final friday
of every month moving forward,
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to give us his sense of the
markets, the economy and more. Jeremy, great to talk to you
again. How are you, sir?
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I'm fine. Thank you, Dan. So as we are recording this, we're a
few days away from the August 1
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deadline that President Trump
has put out there on raising tariffs on the EU up to 30%. Lot
of discussion about that, on the
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impact that that will have, or
could have, if it actually goes forward, on both sides, actually.
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Yeah, absolutely. And the impact
is negative. I've always believed and still believe that
the tariff impact is negative,
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even though the results on the
real economy and inflation so far has not yet been seen.
That's because most of what has
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been sold has been sold out of
inventory that was purchased before the tariffs. Now I'm not
saying that the tariffs mean
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disaster in any way, or even
recession, but they do mean a slowdown for economic growth.
And you are right. As we're
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recording this, we don't know
what exactly Trump will put on on August 1. My feeling is
that all the organizations
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negotiating in, quote, "good
faith," will get an extension, and those who have not yet come
to the table will probably get a
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slapped-on tariff that would then
be reduced once they start coming to the table. We
really don't have a lot of full
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trade announcements to be made.
Trump has been promising, you know, those trade announcements
for a long time, and they've
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been precious few. But it does
mean that they happen in negotiations. And I think many of
them are virtually done,
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subject to their own
government's approval. I do think it's going to take GDP
down from what it would be
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otherwise. Cut a point, point
and a half from GDP over the next year, year and a half, add
a point to two points on
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inflation. That's not
disastrous, but it certainly is a negative. It doesn't mean that
the stock market can't continue
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to do well, because there's a
lot of other, you know, positive factors in the economy that are
offsetting the tariffs.
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What do you see as those factors?
Because it has been kind of unique to watch the markets over
the last few months to see, to a
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degree, the resiliency that's
been there. Yeah. I think a very
positive factor, first of
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all, the tax cuts. They were,
many of them, made permanent. There's much more certainty
there in terms of what we had
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before. Going forward, they are
positive for capital formation. And secondly, the AI boom.
There's a lot of opportunities
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for firms. And I think I
mentioned this before, that can use AI to offset some of the
increased cost of tariffs and
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offset them. So we may be at the
verge of sort of a revolution of productivity where firms are
going to really— they have an
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excuse now for laying people
off. Either you produce, you learn how to use AI to help in
the position, or, unfortunately,
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we don't need you anymore. So
that could raise productivity growth. AI has recovered,
certainly. You know, it looked
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like it was down and out in
February. I mean, throwing Trump's reversal on Nvidia, in
terms of allowing them to sell
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chips in China, you know, has
been certainly positive for Nvidia, but it's also been
positive for the entire AI
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sector and tech sector. So the
tech sector has recovered its steep losses. The rotation that
looked like it was happening in
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the stock market towards those
value stocks really sort of reversed. AI is back on top. I'm
not giving up hope on those
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other stocks. They're valued
very, very well, but they have to start producing profits and
using AI in order to up their
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margins and increase their
earnings. There's been a growing
level of discussion, switching to
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the Fed, about what we will see
with the leadership of the Fed over the next several months. We
see Chair Powell has his tenure
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into 2026, but a lot of
discussion around that. What are your thoughts on the work that
he has done, and what we need to
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see moving forward from the Fed
and from the leaders of the Fed? Yeah, now let me say I've been
teaching monetary theory and
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economics for almost a half a
century. I know how important the independence of the Fed is.
Yet it might be surprising, I
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actually went on news media last
week and said I actually think that Fed— that Chairman Powell
should consider resigning. I got
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a lot of resistance, of course,
and I expected it, but I do not see a win-win for Chairman Powell
now. I mean, if the economy goes
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down, he'll be blamed even more.
Trump will remove him. The Senate will be much more
sympathetic, saying he didn't
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lower interest rates, and in
fact, could ask the Senate for more powers to restrict the Fed.
Don't forget that the Fed is a
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creature of Congress and can be
modified by Congress at any time. If, on the other hand, the
economy booms, you know,
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Trump will be taking all the
credit due to his Great Big Beautiful Bill, his tax cut, his
deregulation, and his tariffs.
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So, I mean, it sort of tails, the
Fed and Chairman Powell go down, and heads, hey, they come out
even. Those aren't good odds.
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He's also going to be, you know,
replaced in 10 months anyways. He may— if a successor is named
earlier, he becomes a lame duck
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even—even sooner than that. My
preference on the— on the front runners to replace Powell, it
would be Kevin Warsh. I'm
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impressed with him. I always— I
have been. I know Kevin Hassett, by the way, very well. And
personally, I don't think he
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would be as good for the Fed as
Warsh. Warsh has been on the Fed and has a tremendous amount of
institutional knowledge about
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the Fed, and I don't agree with
everything that— that he said about it, but I agree a lot with
what he said of it. So we're, you
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know, we have a— we have a good
person in the wings. You know, I don't know how— now it looks
like any member of the Fed that
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votes to lower rates is bending
to Trump. Let me say the following. I want Trump to own this
economy, good or bad. I
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don't want a scapegoat. I don't
want him to have a scapegoat in order to blame— blame the
Fed, they didn't lower rates.
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That's why things didn't work
out. If he named his own person, he can't use the Fed as a
blame. Certainly not as
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effectively. You know, he wants
to set the economic agenda. Let him own all the
failures and all the successes
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that his policies entail. Before I let you go, let me
quickly ask you about the path
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on rate cuts and what you think
we're going to see play out for the remainder of this year.
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Well, it depends completely on
the economy. I mean, if Warsh comes in, let's say, or even Hassett,
there will be faster rate
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cuts. I don't think the final
position will be much. I think many of the models I look at are
talking about Fed funds
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eventually to 3%. The economy is
holding up, to be sure. I do not think it's appropriate for
the Fed to tighten when there is
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tariffs that add to the cost.
That's like tightening because there's a tax increase. That's
not what I think is effective. I
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think they should be
looking through the tariffs, and we do see a slowing economy.
There's no question, GDP growth
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is slower, labor growth, market
growth is slower, and it looks slower in the second half. So
given that it's slower, I think
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the Fed funds rate should be
around 3%. Now, it's not going to be changing next week, the
meeting. And everything else
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really depends on whether, you
know, Chairman Powell hangs on and— but most importantly, do we
get slowest in the— in the labor—
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labor force really seeing that
payroll go down near zero or even maybe negative, if the
economy slows down sufficiently.
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You know, it weren't for state
and local increases last month, and that would be— you know,
we're talking about the month of
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June, we actually would have
seen almost no growth in the private sector at all in terms
of employment. So we haven't
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seen that slow down. I think the
Fed should be reacting to it. I do not see any recession on the
scene, at least at this point.
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Jeremy, always great to talk
with you. We will catch up with you again next month.
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Thank you
very much, Dan. You've got it. Jeremy Siegel, Wharton,
Emeritus Professor of Finance and Chief
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economist at WisdomTree.