Jeremy Siegel, a professor at the Wharton School of the University of Pennsylvania, has called for a substantial reduction in the Federal Reserve’s interest rates. 

Siegel recommends an immediate emergency cut of 75 basis points in the Fed funds rate, with an additional 75 basis point cut to be signaled for the upcoming September meeting.

“I’m calling for a 75 basis point emergency cut in the Fed funds rate, with another 75 basis point cut indicated for next month at the September meeting – and that’s minimum,” Siegel stated. 

These proposed cuts are significantly larger than the typical adjustments seen in recent years, reflecting the urgency Siegel sees in addressing economic challenges. If implemented, these measures could lower borrowing costs, stimulate investment, and provide a boost to consumer spending.

Siegel isn’t concerned that an emergency cut will send the markets into a downward spiral. In fact, he thinks the market will welcome the cuts and “rips higher.” 

“Don’t think that the Fed knows something. … Since when has the Fed known anything about the economy?” he said. “The market knows so much better than the Fed. They’ve got to respond.” 

If the Fed does not make an emergency cut before September’s meeting, the market will react badly, Siegel predicted. 

Worth noting, On January 22, 2008, the Federal Reserve, responding to an international stock sell-off and the likelihood of a sharp drop in America, cut its benchmark interest rate by three-quarters of a percentage point. 

The Federal Open Market Committee lowered its target for the federal funds rate on overnight loans between banks to 3.5 percent, from 4.25 percent.

Economic Context

Several macroeconomic factors have contributed to the current economic situation. The U.S. labor market data added to the negative sentiment. 

The nonfarm payrolls for July rose by 114,000, far below the expected 175,000, and the unemployment rate unexpectedly increased by 0.2% to 4.3%, the highest in nearly three years. Average hourly earnings grew by 3.6% year-over-year, the slowest pace in three years, further highlighting a weakening labor market.

Major stock indices saw declines, with the Nasdaq dropping 2.43% and the S&P 500 falling 1.84%. Additionally, Warren Buffett's Berkshire Hathaway sold nearly half of its Apple Inc. position during the second quarter, which also weighed heavily on the equities market.

The stock market sell-offs were not confined to the U.S. Japan’s Nikkei 225 and Topix indices also plunged, nearing bear market territory. The Bank of Japan’s decision to raise its key interest rate last week led to significant market reactions. The Nikkei index fell over 13% on Monday, marking its biggest one-day plunge since 1987.

Impact on Cryptocurrency Market

The cryptocurrency market faced a dramatic downturn, leading to significant liquidations and substantial price drops. Bitcoin fell by 16.53% in 24 hours, reaching its lowest level since February, trading at $49,883. 

Ethereum experienced an even steeper decline, dropping 23.75% to trade at $2,186. The entire crypto market witnessed an 18.2% decline within a single day, causing over $1 billion in liquidations.