The Federal Reserve is facing criticism for its role in the recent historic stock market plunge. Many experts believe that the Fed’s decision to leave interest rates unchanged at its last meeting has contributed to the chaos in the markets. Calls for steep rate cuts have been growing, highlighting concerns over the Fed’s delayed response to a slowing economy.
The S&P 500 has dropped as much as 7% since the Federal Reserve decided to keep rates steady at the current range of 5.25%-5.50% during its policy meeting last week. Similarly, the Nasdaq 100 has seen a decline of up to 10% over the same period. Wharton professor Jeremy Siegel has been vocal in his criticism of the Fed, stating that they are „way behind the curve“ and calling for a 150 basis point cut over the next two months.
Siegel believes that an emergency cut of 75 basis points in the Fed funds rate is necessary, with another 75 basis point cut at the September meeting. He argues that the Federal funds rate should be between 3.50%-4%. Siegel has been critical of Fed Chairman Jerome Powell for acting too late in raising interest rates during the inflation boom in 2021 and 2022, and now believes that Powell is making the same mistake by waiting too long to cut rates.
While some commentators have suggested that the stock market decline may be driven by factors such as the upcoming presidential election or geopolitical tensions, Siegel firmly places the blame on the Federal Reserve. He believes that the Fed’s slow response to economic indicators is the root cause of the current market turmoil.
JPMorgan strategist Mislav Matejka also weighed in on the situation, stating that the lack of Fed rate cuts in the first half of the year will impact economic growth in the second half. Matejka believes that any future rate cuts from the Fed may not be sufficient to stimulate a rebound in the economy.
Despite criticism that the Fed may be „behind the curve,“ some experts suggest that this may be a deliberate strategy. Fed Chairman Powell may be aiming to convey a message that even in the face of a potential recession, the Fed is committed to controlling inflation. This approach could be seen as a way to avoid accusations of political motivation behind rate cuts.
Overall, the sentiment in the market is that the Federal Reserve has waited too long to cut interest rates and is now playing catch-up. The delayed response to economic indicators has raised concerns among investors and experts alike. As the Fed faces mounting pressure to act decisively, the future direction of interest rates and the impact on the economy remain uncertain.