The Federal Reserve is set to announce its next interest rate decision on December 10, a meeting that comes amid unusual uncertainty.
With official economic data releases disrupted by the government shutdown, policymakers are relying on older reports and private surveys to gauge the health of the economy.
Despite this fog, Jeremy Siegel, professor emeritus of finance at the University of Pennsylvania’s Wharton School and chief economist at WisdomTree, believes the Fed will deliver what he calls a “hawkish cut.”
Siegel sees a 25 bps reduction, but stresses that dissent will be unusually high, with some officials pushing for a larger 50‑point cut and others arguing to hold rates steady.
“This would be the most dissents under Powell’s nearly eight years as chairman,” he told CNBC, underscoring the divisions inside the central bank.
According to Siegel, the move will reflect both the Fed’s desire to support a cooling labour market and its caution about inflation that remains above target.
JOLTS data supports Siegel’s view of a rate cut
Fresh labour market data (JOLTS) released today offers another reason for the Federal Reserve to consider easing.
US job openings stood at 7.67 million in October, little changed from September’s 7.66 million – indicating a labour market that’s slowing gradually, as businesses adjust to tariffs and stubborn inflation.
Meanwhile, hiring and separations also stayed largely flat, reinforcing the narrative of a cooling jobs market.
While not recessionary, the data highlight reduced demand for workers compared to the pandemic‑era highs above 11 million openings.
This moderation, combined with rising unemployment and slower payroll growth, strengthens the case for a modest rate cut to cushion the economy against further weakness.
What a rate cut would mean for the US bond market
Speaking with CNBC, Siegel cautioned that the upcoming rate cut may not move long‑term yields significantly.
“Fed funds rate, if you go back through the last 75 years, has been about 100 basis points below the 10‑year,” he explained.
With the 10‑year Treasury yield hovering near 4.15%, Siegel sees the Fed’s target settling in the low 3s.
That would leave long rates, including 30‑year mortgages, largely unchanged.
However, he emphasised that the impact on short‑term borrowing will be substantial.
“There’s over $15 trillion worth of loans tied to the Fed funds rate,” Siegel noted, pointing to auto loans, credit cards, inventory financing, and prime rate lending.
Even if mortgage rates remain sticky, lower short‑term rates would stimulate economic activity by easing household and business borrowing costs.
What a rate cut would mean for the US stock market
For equities, Siegel’s “hawkish cut” framing is critical. A 25‑point reduction signals the Fed is willing to support growth but remains vigilant about inflation.
That balance could temper investor enthusiasm, as markets often rally more strongly on dovish signals.
Still, lower short‑term rates reduce financing costs for corporations and improve liquidity, which tends to support risk assets.
The prospect of dissent within the Fed may inject volatility, with traders parsing the vote split for clues about future policy direction.
Siegel suggested that the Fed’s cautious stance reflects confidence in the economy’s resilience, noting that tariffs have not yet produced significant dampening of sales.
For investors, the message is clear: while the Fed is cutting, it is doing so reluctantly, making the stock market’s reaction more nuanced than in past easing cycles.
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