Jeremy Siegel on Economic Growth, Tariffs, AI, Trade, and the Fed

Category: Economic Analysis

Tags: AIeconomyFedpolicytariffs

Entities: AIDonald TrumpEUFederal ReserveJeremy SeagullJerome PowellKevin HassetKevin WorshNvidia

Transcript

00:00

And a pleasure to welcome to our show as always Wharton ameritus professor of finance Jeremy Seagull who was also chief economist at Wisdomree. Jeremy will be joining us on the final Friday of every month moving forward to give us his sense of the markets, the economy

00:16

and more. Jeremy, great to talk to you again.

How are you, sir? I'm fine, thank you, Dan.

So, as we are recording this, we're a few days away from the August 1st deadline that President Trump has put out there on raising tariffs on the EU up to 30%. Lot

00:33

of discussion about that uh on the impact that that will have or could have if it actually goes forward on both sides actually. Yeah, absolutely.

Um and the impact is negative. Um, I've always

00:50

believed and still believe uh that the tariff impact is negative. Uh, even though the results uh on the real economy and inflation so far has not yet been seen.

That's because most of what has been sold has been sold out of inventory that was purchased before the

01:08

tariffs. Now, I'm not saying that the tariffs mean disaster in any way or even recession, but they do mean a slowdown for economic growth.

Uh, and you are right, as we're recording this, we don't know what exactly uh Trump will put on

01:24

on August 1st. My feeling is is that all the organizations negotiating in quote good faith uh will get an extension and those who have not yet come to the table will probably get a slapped on tariff uh

01:41

that would then be reduced once they start coming to the to the table. We really don't have a lot of full uh trade announcements to be made.

Trump has been promising, you know, those trade announcements for a long time and there have been precious few, but it does mean

01:57

that they have been in negotiations. Um, and um, I think many of them are are are virtually done subject to their own um, government's uh, approval.

I do think it's going to take GDP down

02:15

um, from what it would be otherwise. cut a point point and a half from GDP over the next year year and a half add a point to two points on inflation that's not disastrous but it it certainly is a a negative but

02:31

doesn't mean that the stock market can't continue to do well um because there's a lot of other you know positive factors in the economy that are offsetting the the tariffs what do you see as those factors because it has been kind of unique to watch the

02:46

markets over the last few months to see to a degree the resiliency that's been there. Yeah.

Uh I think I think a very positive factor first of all the the tax cuts um uh they were many of them made permanent. there's much more certainty

03:03

there in terms of what we had before going forward. They are positive for capital formation.

Uh and and uh and secondly, the AI boom uh there's a lot of opportunities for firms um uh and I

03:19

think I mentioned this before uh that can use AI to offset some of the increased cost of tariffs uh and offset them. So we may be at the verge of a sort of a revolution of of productivity

03:34

uh where firms are going to really uh they have an excuse now for laying people off. Either you produce uh you you you learn how to use AI to help in their position um or or unfortunately we don't need you anymore.

So that could

03:50

raise productivity growth. AI is has recovered certainly.

you know, it looked like it was down and out in February. I mean, throwing Trump's reversal on Nvidia in terms of allowing them to sell chips in China um you know, has been

04:06

certainly positive for Nvidia, but it's also been positive for the entire AI sector and tech sector. So, the tech sector um has recovered its steep losses.

The rotation uh that looked like it was happening in the stock market towards those value stocks really sort

04:23

of reversed. Um AI is back on top.

I'm not giving up hope on those other stocks. Uh they're valued very very well, but they have to start producing profits uh and using uh uh AI in order to up their margins and and increase

04:40

their earnings. There's been a growing level of discussion switching to the Fed about uh what we will see with the leadership of the Fed over the next several months.

Obviously, Chair Pal has his uh tenure into 2026, but a lot of discussion

04:55

around that. What are your thoughts on the the work that he has done and what we need to see moving forward from the Fed and from the leaders of the Fed?

Yeah. Now, uh let let me say, I've been teaching monetary theory and economics

05:12

for almost a half a century. I know how important the independence of the Fed is.

Uh yet it might be surprising. I actually went on uh news media uh last week and said I actually think

05:28

that fed that Chairman Powell should consider resigning. I got a lot of resistance of course and I expected it but I I do not see a win-win for Chairman Pal now.

I mean if the economy goes down he'll be blamed

05:43

even more. Trump will remove him.

the Senate will be much more sympathetic saying he didn't lower interest rates and in fact ask the Senate for more powers to restrict the Fed. Don't forget that the Fed is is a creature of

05:59

Congress and can be modified by Congress at any time. If on the other hand the economy booms of you know Trump will be taking all the credit due to his great big beautiful bill, his tax cut, his deregulation and his tariffs.

So I mean it sort of tails the Fed and and and

06:16

Chairman Pal go down and hits hey they come out even those aren't good odds. Yeah.

He's also going to be you know replaced in 10 months anyways. He may if if if if a successor is named earlier he becomes a lame duck even ear even sooner than

06:33

that. My preference on the on the front runners to replace Paulo um um it would be Kevin Worsh.

Uh I I'm impressed with him. Um I I have been uh I know Kevin

06:49

Hasset by the way very well and personally I don't think he's would be as good for the Fed as as War. Worsh has been on the Fed and has a tremendous amount of institutional knowledge about the Fed.

I uh don't agree with everything that that he said about it, but I agree a lot with what he said

07:05

about it. So, we're we're you know, we have we have a we have a good um person in the wings.

You know, I don't know how power now it looks like any member of the Fed that votes to lower rates is bending to Trump. Let me say the following.

I want Trump

07:21

to own this economy, good or bad, right? I don't want a scapegoat.

I don't want him to have a scapegoat in order to blame and blame the Fed. they they didn't lower rates.

That's why things didn't work out. If he names his own person, he can't use the Fed as as a blame.

Certainly not as as effectively.

07:38

Uh you know, he wants to set the economic agenda agenda. Um let him own all the failures and all the successes that his policies uh entail.

Before I let you go, let me quickly ask you about the path on rate cuts uh and

07:54

what you think we're going to see play out for the remainder of this year. Well, it depends completely on the economy.

I mean, if if worsh is uh comes in, let's say, or or even has it, there will be faster rate cuts. I don't think the final position will be much.

I think

08:11

many of the models I look at are talking about a Fed funds eventually to 3%. Um, uh, the economy is holding up to be short.

I do not think it's appropriate for the Fed to tighten when there is

08:27

tariffs that add to the cost. That's like uh tightening because there's a tax uh increase.

That's not what I think is effective. I think they should look be looking through the tariffs.

Um and we do see a slowing economy. There's no question GDP growth is slower.

Labor growth uh market growth is slower. Um

08:47

and it looks slower in the second half. So given that it's slower, I think the fed funds rate should be around 3%.

Now at it's not going to be changing uh next week uh the meeting u and everything else really depends on whether you know uh chairman pow hangs on and but most

09:05

importantly do we get slowess in the in the labor labor force really seeing that u uh payroll go down near zero or even maybe negative if the economy slows down

09:20

uh sufficiently. you know, it weren't for state and local uh um increases last month and that would be uh you know, we we're talking about the month of of June, we actually would have seen almost no growth in the private sector at all in terms of employment.

So, we haven't

09:37

seen that slowdown. Uh I think the Fed should be reacting to it.

Uh I do not see any uh recession uh on the scene at least at this point. Jeremy, always great to talk with you.

We will catch up with you again next month. Thank you very much.

09:52

You've got it. Jeremy Seagull, Wharton Ameritus Professor of Finance and Chief Economist at Wisdom Tree.