Jeremy Siegel, a Wharton School of Business professor, has said that the US Federal Reserve needs to announce an emergency interest rate cut of 0.75% amid a bloodbath across the cryptocurrency and stock market.
The global cryptocurrency industry has lost around 13% of its value in the last 24 hours, with the market cap falling to $1.9 trillion. The bearish sentiment stems from fears of a crash across the global stock market.
Fed 0.75% Emergency Rate Cut
The US Federal Open Market Committee (FOMC) maintained interest rates unchanged at 5.25%-5.50% last week. At the time, the Federal Reserve Chair Jerome Powell remained dovish, with the market expecting the first rate cut in years next month.
However, the recent decision to avoid slashing rates during the July 31 meeting has been met with skepticism. This follows the poor performance of global stocks.
The Japanese stock market was the worst hit on Monday, with the prices falling to levels last seen in 1987. Japan’s Nikkei closed trading on Monday with a 12% price decline.
The performance of the entire Asian stock market remained bearish on Monday. Taiwan stocks dropped by over 8%, marking the worst performance in the country’s financial market in 56 years.
The US stock market has also not been spared, with top indexes posting significant losses. The S&P 500 was down 2.7% at the time of writing. The Nasdaq 100 and Dow Jones were also down by 3.3% and 2.3% respectively.
Wharton professor Siegel believes that this is now the right time for the Fed to announce interest rate cuts. The professor said that the Fed needs to announce an emergency rate cut of 75 basis points now, and another 75 basis points cut during the September meeting.
Siegel noted that the US interest rate needed to be between 3.50%-4%. Therefore, the Fed needed to relax its tightening measures considerably. According to Siegel, the US economy had reached the threshold for rates to come back to the standard 2.8% amid falling inflation and unemployment numbers.
Data from the CME FedWatch Tool shows that 92% of investors expect that the Fed will trim rates to 4.75%-5% during the September 18 meeting.
Market Price In Possible Rate Cuts
Investors are pricing in a 60% possibility that the Federal Reserve could announce an emergency rate cut of 25 basis points next week.
According to Bloomberg, this cut will happen amid a significant rally in the US bond market, as US Treasury yields drop to yearly lows. The US market has been in a risk-off mode after a weak US jobs report that saw unemployment rates increase. The market is also reeling amid fears of a US recession and surging US debt.
