by Professor Jeremy J. Siegel, Senior Economist to WisdomTree and Emeritus Professor of Finance at The Wharton School of the University of Pennsylvania
Last week’s data sharpened the focus on the pivotal Fed meeting this week. I expect a 25-basis point cut, with real potential for dissents on both sides. Markets are actively gaming out a larger move, but the bar for 50 is still high and would likely require a notably weak retail sales print. The dot plot, far more meaningful at this time of year with only a few meetings left, should cluster around two more cuts by year-end, with some officials penciling in one and others three. That distribution matters more than the median this time, and I expect the plurality to land on two.
The inflation reports and underlying mix was constructive beneath the surface. The prior month’s PPI “shock” was largely erased, while this month’s PPI headline undershoot didn’t translate cleanly into softer PCE components. By contrast, CPI arrived close to expectations, but its internals were weaker, prompting at least one major macro group to trim its August PCE estimate by 10 basis points to about 0.2%. That’s the texture the Fed will lean on: core disinflation continuing, even if not in a straight line.
I am watching tariff pass-through carefully. Early estimates suggested as much as 150 basis points on core from tariffs over a 2–3-year period, but we haven’t seen a decisive effect yet, and the real test comes after pre-bought inventories are worked down into the holidays.
Labor signals are noisy. Jobless claims spiked into the 260k zone, with Texas accounting for an outsized share—seasonals and one-off factors may be at work—but the Fed won’t have a confirming additional weekly jobs claims print before it meets.
Rates told their own story: the 10-Year briefly broke below 4.00% before backing up to the low 4s, a level technicians flag as an important threshold; a decisive break lower would amplify easing financial conditions and support a broader risk bid.
My policy view is unchanged: the fed funds rate should already be in the low 3s—roughly 100 basis points lower than Friday’s setting—given cooling inflation and a slowing nominal economy. If the Committee delivers 25 next week and then cuts at each subsequent meeting through year-end, that’s 75 basis points by December 31, enough to keep growth on track and reduce the odds of a policy-induced stall.
Markets are beginning to sniff that path out; we saw small-cap leadership on the claims-day rally, which skeptics called short-covering, but which fits a soft-landing/easing narrative.
Investment implications are straightforward. I continue to favor equities over long bonds as disinflation eases the equity risk premium without crushing nominal growth. A clean two- to three cut dot plot and a 25-basis point move next week, paired with Chair Powell’s recognition that tariff effects have been modest so far, would be the “dovish tilt” equity investors want. If retail sales significantly disappoint, 50 comes into strong play, but even then, I would frame it as catch-up easing, not panic.
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