The stock sell-off on Wall Street was deemed a “healthy” correction by Jeremy Siegel, a professor emeritus of finance at the University of Pennsylvania’s Wharton School. Siegel believes the Federal Reserve’s cautionary projection on future rate cuts served as a “reality check” for investors, who had been expecting more aggressive rate cuts. The Fed cut interest rates by a quarter percentage point, but indicated that only two more rate cuts were likely in 2025, fewer than previously projected.
The revised Fed outlook led to a sell-off in the markets, with all three major indexes dropping in response. Siegel attributed the market’s negative reaction to its overly optimistic expectations of future rate cuts. He expects the Fed to pare back the number of rate cuts next year, with only one or two reductions, and potentially no cuts at all if inflation remains elevated.
Siegel suggested that some FOMC officials may have factored in the potential inflationary impacts of upcoming tariffs, which could also impact the Fed’s monetary policy decisions. Market participants now expect the Fed to not cut rates until June, with a 43.7% chance of a 25 basis-point cut at that time.
Other economists, such as Marc Giannoni from Barclays, also expect only two rate cuts next year, with the possibility of resuming incremental rate cuts in 2026 when tariff-led inflation pressures dissipate. The Fed’s move into a “pause phase” could lead to more volatile financial markets in 2025, according to Jack McIntyre, portfolio manager at Brandywine Global.
