Siegel Says U.S. Recovery Certain, Euro Region Faces Splinter
March 10, 2010, 5:39 AM ESTBy Le-Min Lim
March 10 (Bloomberg) -- Jeremy Siegel, a finance professor at the University of Pennsylvania’s Wharton School, says the worst is over for the U.S. economy and the Federal Reserve may raise interest rates by year’s end to cool growth.
Spending by companies on equipment and plants will outpace private consumption as the main growth driver this year, he said in an interview in Hong Kong. The jobless rate, at 9.7 percent last month, will fall below 9 percent by the end of 2010, he said. That may force the Fed to tighten policy and full-year economic growth may reach 4 percent, he said.
The Fed “will feel comfortable raising the rates as long as the situation continues to improve, as I believe it will,” said Siegel, in an interview in Hong Kong. Siegel, 64, is an adviser to U.S.-based WisdomTree Investments Inc., which had $6.7 billion of assets under management as of the end of last year.
The Fed and the Treasury are trying to withdraw the emergency measures introduced during the financial crisis without triggering a relapse in the economy. Fed Chairman Ben S. Bernanke said Feb. 24 the U.S. is in a “nascent” recovery that still requires keeping interest rates near zero “for an extended period” to spur demand once stimulus wanes.
In Europe, the European Central Bank will have little alternative other than to keep interest rates low as euro region members such as Greece struggle to convince investors they will cut soaring budget deficits, he said. Its benchmark rate is currently at a record low of 1 percent.
Exports
The euro is making the exports of nations such as Spain and Greece so uncompetitive that they may start talks as early as next year to leave the 16-nation bloc, he said. That departure would be “painful and difficult and drag down the region for a few years,” he said. One weakness of the currency union is that it lacks a proper and orderly exit strategy for members that can’t keep up, Siegel said.
“They should have signed prenups before they got married to the euro,” said Siegel, referring to agreements that outline the terms of a divorce.
A U.S. recovery and uncertainty in the eurozone mean the dollar will remain a “viable” asset, said Siegel.
Later this year, China may start a managed appreciation of the yuan, Siegel said. China wants to revert to export-driven economic growth, so is more likely to try a staggered revaluation than a major, one-time adjustment, he said.
--Editors: Dirk Beveridge, John Fraher
To contact the reporter on this story: Le-Min Lim in Hong Kong at lmlim@bloomberg.net.
To contact the editor responsible for this story: Mark Beech at mbeech@bloomberg.net.
