Federal Reserve Chair Jerome Powell is navigating a difficult moment for the U.S. economy as a stream of weakening economic data—from softening job growth to slower consumer spending—signals that the long-anticipated cooling may be underway. But rather than sparking panic, some market watchers say this is precisely the development investors have been waiting for.
Among them is Jeremy Siegel, the Wharton professor emeritus often dubbed the “Wizard of Wharton,” who argues that signs of weakness are exactly what markets needed to bolster confidence in upcoming Federal Reserve rate cuts.
Labor Market Weakness Reshapes the Fed Debate
Recent U.S. jobs reports have revealed slowing payroll growth, a modest uptick in unemployment claims, and reduced demand for temporary workers. Combined with downward revisions in earlier data, economists say this points to a labor market that is no longer overheated.
For Powell’s Fed, this shift is critical. After holding rates at multi-decade highs to tame inflation, policymakers now face a balancing act: avoid stifling growth entirely while ensuring inflation continues its descent toward the 2% target.
Siegel believes the Fed now has a clear path to ease, since the slowdown gives it cover to cut rates without losing credibility. “The weakening labor market is not a danger signal—it’s the signal that rate cuts are finally justified,” he told CNBC.
Wall Street Aligns with Siegel
Markets appear to agree. Goldman Sachs recently projected that the Fed could begin trimming rates sooner than expected, pointing to decelerating inflation and softer growth data. Futures markets are now pricing in multiple rate cuts over the next 12 months, betting the central bank will move quickly to support the economy.
Stock indexes have surged on the belief that borrowing costs will fall. The S&P 500 and Nasdaq have both rallied, while bond yields have drifted lower as investors anticipate easier monetary policy.
Powell’s Cautious Messaging
Still, Powell has avoided signaling any sharp pivot. Speaking at the Fed’s latest press conference, he emphasized that while inflation has cooled from its 2022 highs, risks remain. The central bank, he said, will continue to be guided by incoming data rather than market expectations.
Yet that data now increasingly suggests that restrictive policy is taking its toll. Consumer confidence has slipped, manufacturing indices remain in contraction, and small businesses are reporting tighter credit conditions.
Why Weak Data Boosts Confidence
To many, including Siegel, the paradox is clear: bad news on growth is good news for markets. The softer the economy looks, the more confident investors become that Powell will be forced to cut rates.
This dynamic has created a rare alignment between Wall Street and academic economists who traditionally warn about the dangers of premature easing. For now, the consensus is that modest weakness is not a sign of imminent recession but rather evidence that policy tightening has worked.
Risks Remain
However, not all analysts are as optimistic. Critics warn that if the Fed cuts too aggressively, inflation could reignite, especially given volatile energy prices and global supply chain uncertainties. Others note that once labor markets soften, they can deteriorate quickly, leaving policymakers with little room to maneuver.
The Bottom Line
For Powell, the challenge is one of timing: wait too long, and the U.S. risks a sharper downturn; move too fast, and inflation might resurface. For investors, however, the message is simpler—weak economic data is not a reason to panic. Instead, it has become the market’s strongest signal yet that the long-awaited easing cycle is just around the corner.
