Jeremy Siegel says the banking crisis has made him more optimistic about the US economy next year
Jeremy Siegel said the banking crisis has made him more optimistic for the US economy next year.
The turmoil will squeeze conditions, meaning the Fed should ease up on rate hikes, the Wharton professor said.
"A natural downshift in how tight policy will become from this is one of silver linings from this current banking crisis," he said.
Fears about the impact of a banking crisis are preying on markets — but there could be a silver lining for the US economy, according to Wharton professor Jeremy Siegel.
While Paul Krugman has warned the chaos has increased the risk of a US recession, Siegel was more upbeat in his weekly commentary.
"The recent turmoil in markets also makes me more optimistic on the outlook for 2024," Siegel said in the commentary Monday.
"If this banking accident occurred later, we would have much higher rates," he added, referring to the Federal Reserve's aggressive interest-rate campaign.
"So, a natural downshift in how tight policy will become from this is one of silver linings from this current banking crisis."
The collapse of Silicon Valley Bank has shifted investors' focus away from high inflation — the Fed's nemesis — onto the risks around credit. The second biggest bank failure in US history, the shutdown of Signature Bank and the government-backed takeover of Credit Suisse by UBS have driven a wave of pessimism.
But Siegel suggests the fallout from the banking mayhem will push the Fed to ease up on rate increases. It has hiked interest rates by 450 basis points since March 2022 to combat soaring inflation in the US economy.
The banking turmoil is doing some of the US central bank's job for it by tightening financial conditions, according to several analysts. Customers are shifting their deposits to bigger banks, which are typically less likely to lend to businesses, while the risk of further bank runs could prompt some institutions to turn cautious on making loans.
Traders have scaled back their rate-hike bets in light of the jitters, with 90% anticipating a 25-basis-point increase from the Fed at the end of its meeting Wednesday, according to the FedWatch Tool. Earlier, 50 basis points was largely expected.
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