Wharton professor Jeremy Siegel says there's 'no question' the US is already in a recession and the Fed could shock markets with a much smaller rate hike this month if data weakens

jeremy siegel
Steve Marcus/Reuters
  • Jeremy Siegel said there was "no question" the US was in a recession, even if it hadn't been called.

  • It's possible the Fed won't need to hike interest rates as much as anticipated to fight inflation.

  • "The Fed has to be careful not to slam on the brakes and just crash this economy," Siegel said.

The US is already in a recession and there's a possibility that the Federal Reserve won't have to hike interest rates as much as markets have anticipated if data continues to weaken, Jeremy Siegel, a professor at the Wharton School of the University of Pennsylvania, said.

Siegel predicted that second-quarter gross-domestic-product growth would be negative for the second straight quarter, which would meet the technical definition of a recession.

"We are really in a recession. There's no question," Siegel said in an interview with CNBC on Wednesday.

His comments came ahead of the Fed's release of the minutes from its June meeting at 2 p.m. ET. Loretta Mester, the Federal Reserve Bank of Cleveland's president, told CNBC last week that she would be pushing for a 75-point rate hike at the meeting at the end of this month. It would be another episode of dramatic interest-rate increases to tame prices.

Siegel is skeptical that such a move will be necessary. Inflation is hot, he said, with the May consumer price index clocking in at 8.6%, the fastest rise since 1981. The S&P 500 also just finished its worst half of the year since 1970, cutting deep into investors' earnings.

But a 75-basis-point hike could be "excessive" given softening economic conditions, he said, and observers are overestimating how tight policy needs to get to fight inflation.

Siegel said there were signs inflation had peaked and that the Fed may be going too far in its hawkish pivot. Certain segments like commodity and housing prices have peaked, though wages continue to rise. Money supply has grown stagnant, which is another indicator that inflation is no longer accelerating.

"The Fed has to be careful not to slam on the brakes and just crash this economy," Siegel said. "They have to realize most of the inflation now is behind us, even though it's going to go through the official statistics for the next six to 12 months."

Siegel said that if high-level economic data points weakened ahead of the next Fed meeting, a much lower rate hike could be delivered by the central bank, even as low as 25 basis points versus the 75 basis points markets expect.

"Yes, the Fed has to do some more tightening, but may they don't have to go to that 3.75% the funds rate is projecting," he said.

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