Wharton’s Jeremy Siegel says ‘YOLO’ consumers are driving the economy but warns ‘this could be one of the last good stretches’

Jul 11, 2023 4:35 am | 2 minutes read

The revised first quarter GDP growth and some other recently released data show that the economy is doing quite well despite the uncertainties. However, one economist warns the strength could be a thing of the past.

What happened: The economy appears to be moving smoothly and resilient consumers remain immune to the impact of higher borrowing costs, the Wharton professor said Jeremy Siegel in WisdomTree’s weekly commentary.

“It is the ‘YOLO’ (you only live once) consumer who travels and enjoys the summer,” the economists said. But he warned against further developments.

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“But it could also be one of the last good stretches for the economy before summer comes to an end and credit card bills come due – then we go back to school and September to October was a time of some tricky times for the markets.”

The economist said it would be a mistake for the Federal Reserve to allow the job market to ease significantly before rate hikes stop and easing begins.

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Siegel admitted that given the significant rise in real interest rates and the drop in liquidity, he does not expect the labor market and the real economy to be as strong as they have been.

“However, I don’t think the second half of the year will be a great time for the markets,” he said, adding that a dramatic deterioration is unlikely to materialize either. He sees a battle between recession fears and a slowdown in market dynamics. The Fed is likely to respond by easing monetary policy and cutting interest rates, he added.

Why it matters: After a pause in June, the Fed is widely expected to hike interest rates when the division’s monetary policy framework consolidates later this month. The futures market has started pricing in a 94.9% chance of a 25 basis point hike to 5.25-5.50%.

However, some analysts are optimistic that June CPI will surprise to the downside and prices will continue to trend downward in the coming months. This could give the Fed leeway to end its hawkish stance.

Siegel said, “Obviously there are more hawks than doves about the Fed, although I still think the Fed should pause its rate hikes and monitor the cumulative impact of the tightening already in place.”

Continue reading: New York Fed survey shows lowest near-term consumer inflation expectations since April 2021

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