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The latest meeting of the
leadership of the Federal
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Reserve ended up with no rate
cut, and the benchmark rate
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staying in a range of 3 1/2
and 3 3/4 percent.
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That news may be
not so much a surprise as was
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the fact that there were two
dissenters to that position,
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Governor Stephen Miran and
Christopher Waller, who both had
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asked for a quarter point cut.
So what lies ahead for the Fed,
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the economy and rate cuts?
Pleasure to welcome back for our
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monthly conversation, Jeremy
Siegel, Wharton Emeritus
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Professor of Finance, as well as
senior economist at WisdomTree.
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Hi, Jeremy, how are you?
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I'm good. Yeah. So Miran was, of
course, not a surprise. A little
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bit of a surprise, Waller. I mean,
now everyone's asking, "Is he
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asking for a quarter because
he still wants to be in the
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running as Fed Chair? Or does
he really feel— I mean, I do not
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know the man personally. I mean,
there is— you know, I believe
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he's probably thinking that we
should be lower. I've said last
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month that I— that the short-term
interest rate should be 100 to
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110 basis points under the 10-
year. The 10-year is four and a
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quarter. That puts it at 3-10.
Eventually, as you mentioned
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right at the onset, it means two
more cuts. And eventually, this
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year. And the market thinks
probably not in the last two
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meetings of Fed Chair Powell,
but perhaps mid-year and the
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fall to get there. But remember,
that completely depends on the
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course of the economy. I mean,
whether it's stronger. So, you
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know, people quote me
probabilities. And I said, "You
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have a weaker employment report,
and boy, those probabilities
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will change in two seconds." So,
you know, the economy is
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doing well. not quite as well as
the St. Louis Fed thinks.
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because we actually just got, a
few minutes ago, the trade
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report from November, which was
a bigger deficit. That will
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subtract some. But, I mean, it's
not going to be 5%, but I think
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it could be in the 4% range.
Goldman Sachs still thinks
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fourth quarter is two and a
half. But even— even two and a
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half to three and a half— which
is, you know, two points
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slower than— than St.
Louis— is certainly not a bad, at
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all, performance, you know, given
that we had a 46-day government
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shutdown.
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Well, okay. And then there— we
now have a possibility of
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another government.
- Yes, we do.
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- As we're taping this,
you know,
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a couple of days ahead of what
this potentially could occur,
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give us your thoughts on the
potential impact of having
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another government shutdown.
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Well, again, it depends on how
long. Yeah, this is very
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unfortunate, again. And no one
knows, I mean, you know, how long
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it is. There was some progress
that they said that was made. I
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didn't check the betting
markets. I mean, the betting
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markets yesterday were 70% we're
going to at least have a
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shutdown for one or two days.
That won't be much of a problem.
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But again, anything that even
approaches what we had before, I
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think would really cut into
first quarter GDP.
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Let me ask you something. Because
Chair Powell, in his comments
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yesterday, mentioned that he
thought it was appropriate to
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hold right now because of the
three cuts that we had just had,
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and to see how much impact and
what they are going to mean for
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the economy. When he says that,
give us your thoughts on that
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being kind of the stance of,
"Okay, we've done three cuts in a
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row. Let's just hold for a second— "
- Yeah.
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"— and see how they impact what's
going on out there."
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Well, I mean, you know, the
thing is that we've actually— we
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had a little bit of a
strengthening of the labor
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market. Unemployment rate had
been four-six. It was down to
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four-four. Jobless claims are in
the low range. So we— you know,
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there was some fear of a big
weakening of the labor market,
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and there hasn't been. So I
think that justifies them to
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hold, in their mind. Inflation,
you know, we will— we will see.
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I mean, we're a little bit,
really, getting some commodity
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inflation here. Gold, silver,
but also some metals. How much
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that adds is uncertain. The
recent decline in the dollar
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might add a little bit of
pressure also, although, on the
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other side, as we said, the
housing inflation still, year
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over year, on both rentals and
prices of homes are virtually
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flat. So. And that's a big
chunk, and should work its way
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in. I'm— not at this point, I'm
looking at these commodity prices
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and saying, "Let's keep our eye on
them," but I'm still pretty
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sanguine on the inflation
projection for 2026.
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What are your thoughts about
Wall Street in general right
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now? Because it's been kind of a
slow and steady uptake by the
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three major indices in the last
few weeks. I think the S and P
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has had two or three record
closes, but they've been by an
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inch or two to get past that.
But you've still seen— we
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haven't seen a strong pullback.
And I know you're very wary of,
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you know, seeing the markets cut
at some point.
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Now I— you know, the thing is, I
mean, we got these three speed
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bumps of January, which I
thought were all going to be
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resolved by now. I mean, first
of all, is there going to be
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another government shutdown?
Who's going to be the Fed Chair?
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And the SCOTUS. I'm very
disappointed that they did not
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rule yet. And in fact, the
earliest ruling now is supposed
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to be February 20. That gives
Trump a free reign to keep on
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threatening tariffs, one way, or
the other. So those three little
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bumps are still out there to
resolve. But once those are
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resolved, I mean, 2026 looks
good. I mean, earnings look good.
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I mean, we're getting first
quarter earnings— fourth quarter
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earnings right now. You know,
there are ups and downs, but
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guidance is not bad. And, you
know, 2026 should still be a
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good year of earnings. The
big news, of course, is the
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broadening of the market. You
know, with the small caps doing
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a tremendous run. And even what
we would call the— you know, the
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non Mag-7 stocks. So the Mag 7
have had their ups
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and downs, certainly, of that.
And I'm not surprised. Is this
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the long— you know, there were so
many head fakes on the
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broadening of the market in 2025,
you're reluctant to say, "Oh,
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yeah, this is the broadening of
the market," when, in fact, it's
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another head fake. But I think
there's more— there's more
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threats to AI that could—
competitive threats, and coming
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from all directions. China. With—
you know, even companies
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themselves. Technological
breakthroughs— and we can talk
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about them— that I think could
keep the lid on Mag 7 prices
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this year to allow the rest of
the market to outperform.
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So when you talk about AI, and
I'll finish up on this, there is
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still so much that is unknown
about how this is going to
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develop, what it's going to mean
to the labor force. You know,
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there are so many components
that we just don't know. How, as
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an economist, do you have to
view this period in time with
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this transformative technology,
which is obviously going to have
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a significant impact, and not
really knowing fully what kind
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of impact it might have?
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You know, we hear the—
that Amazon's cutting
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10, 15,000. UPS is cutting. We
see those. But, you know, we're
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not seeing anything really in
terms of the jobless claims.
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There's also challenger
layoffs. They come with a lag.
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Are we going to see, you know—
are we going to see, you know,
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massive layoffs? You know,
there's an uptick of using AI
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tools. But Goldman Sachs and
others that have been following
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it, it's a very slow, steady.
Which, you know— it could be
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accelerated by a number of
factors. But at this particular
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point, the use of AI, you know,
has— you know, has been a factor
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keeping productivity high. Again,
we're gonna see great productivity the
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third quarter. Fourth quarter
looks good, although this pre-
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deficit can bring down GDP.
Can it— can the
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productivity maybe go to three,
4 percent? Then we'll really see the
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effects. And that's one reason
why, you know, the cut down of
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immigration is a good thing if
it's— because AI is not
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going to create those jobs.
That's going to keep the demand
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and supply of labor more in
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balance than we would
have seen otherwise.
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Jeremy, always great to chat.
We'll talk to you again next month.
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Absolutely. Thank you,
Dan.
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You got it. Jeremy Siegel,
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Wharton Emeritus Professor of
Finance and also senior
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economist at WisdomTree.
