The die is cast, says Jeremy Siegel: Markets sense it, and Fed Chair Powell knows it — a rate cut is coming

Economist Jeremy Siegel anticipates significant Federal Reserve rate cuts, potentially 50 basis points in September, driven by recent weak employment data and his assessment that core inflation is nearing the 2% target despite tariff effects. He projects successive cuts through March, bringing the target rate to approximately 3%, citing mounting political pressure for looser monetary policy. Siegel dismisses term-premium risks, forecasting 10-year Treasury yields falling to 3.75%, and recommends investment in AI-related equities, utilities, and REITs due to these anticipated easing conditions.

Analysis

Economist Jeremy Siegel posits that a Federal Reserve rate cut is not only inevitable but could be as substantial as 50 basis points in September, a view supported by futures markets pricing in a 90% probability. This forecast is anchored in several key observations: feeble employment data, a dovish shift on the Fed board with the nomination of Stephen Miran, and mounting political pressure for monetary easing. Siegel's analysis dismisses current inflation fears, calculating that core CPI is near the 2% target when tariff effects are isolated and predicting a rare inversion where services inflation will undershoot goods inflation by year-end. He projects a series of rate cuts at each FOMC meeting through March, potentially lowering the Fed's target rate to approximately 3%. Consequently, he anticipates the U.S. 10-year Treasury yield will decline towards 3.75%, dismissing term-premium risks by arguing that long-bond yields are driven by growth expectations, which are moderating.

Key Decisions for Investors

• Consider overweighting positions in sectors with strong earnings momentum that can justify growth premiums, particularly AI-related industries such as semiconductor manufacturers, hyperscale cloud platforms, and software providers.
• Evaluate increasing exposure to interest-rate sensitive sectors like utilities and Real Estate Investment Trusts (REITs), as they are positioned to benefit directly from the tailwind of declining bond yields.
• Monitor upcoming FOMC meetings and Fed Chair Powell's Jackson Hole remarks for confirmation of this dovish pivot, as any deviation from the anticipated easing cycle presents the primary risk to this investment thesis.