Wharton School of Finance Professor Jeremy Siegel says that despite uncertainties from Middle East geopolitical tensions and oil price volatility, the Federal Reserve still has room to cut interest rates this year. In his analysis of the current economic situation on CNBC's Squawk Box, he emphasized that U.S. inflationary pressures are easing significantly, particularly due to the continued decline in housing costs.
Siegel pointed out that core inflation—the Fed's key metric excluding energy and food prices—is being strongly suppressed by the stagnation in housing rental growth. He stated, "Nationwide, rental growth has been almost stagnant for three consecutive years, and the Case-Shiller Home Price Index has also fallen to its lowest level in recent years, providing solid support for lower inflation."
He also emphasized that the fundamental shift in the U.S. energy structure has enhanced economic resilience. As a major global energy exporter, the U.S. has nearly halved its energy intensity since the 1970s, meaning that even if oil prices soar to $120 to $150 per barrel, the impact on the overall economy would be much smaller than in the past. In addition, rising oil prices push up the dollar exchange rate, which in turn lowers the prices of imported goods, creating an indirect buffer against inflation.
Nevertheless, Siegel also cautioned that every $2 increase in gasoline prices could drag down GDP growth by 0.8 to 1 percentage point, putting direct pressure on household consumption. Extreme scenarios, such as the closure of the Strait of Hormuz, are unlikely but could still disrupt the current economic balance. He expects the Fed's June meeting to be a key node for judging policy direction, but there are still many variables in the market, and decisions need to remain flexible.
Overall, Siegel believes that the structural advantages of the U.S. economy are creating conditions for interest rate cuts, giving policymakers more room to maneuver than before.