If midterms weren't on the horizon, the Fed would raise rates, says Wharton Professor Jeremy Siegel

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Let's ask Jeremy Siegel. He is . Nice to see you again, as always. So , the employment report turned out to be better than expected. We are in a historically difficult month. How do you see the situation today? Well, I think it was a very good and non-inflationary employment report, because there were actually more people entering the labor market than getting jobs.

The unemployment rate, if not rounded, rose slightly, which means that it was a response of supply, not excess demand. Wages are fully under control. You know, I think it was a great report. I know the probability of a rate hike has increased a bit, and I will tell you that the September meeting will be crucial for Powell, and if the midterm elections were not approaching, the Fed would have raised rates.

But my God, look at Trump's tweet today. He's not just saying leave it as is, he's saying, "If you don't lower them, I'm going to start imposing tariffs on all these countries." This is just madness . Let's hope that does n't happen, but don't think he won't be under political pressure during the next two Fed meetings.

Oh, I think there are n't even any questions here. But if he were to raise the stakes, as you say he might, then, as I pointed out earlier today, the roof would blow off at 1600 Pennsylvania Avenue. You understand that would be the case , but you don't really think they'd raise the stakes, do you? The data tells me there is room for some interest rate hikes.

If he postpones them until after the elections, that is, until December, will it be a tragedy for the economy? Of course, if things get worse, if inflation continues to rise—Iran is a dark horse— they could step up their missile attacks, which would push oil prices up, which would affect the bond market, and that could force Powell to act and say, " Look, the market is telling me I need to take action to get inflation under control." By the way, I think a decisive move by the Fed could actually lower long-term rates , sending a message: “ Listen, the Fed’s authority is at stake, and we’re going to act.” But, hey, it'll be...

Maybe he'll try to convince Trump of that . I don't think Trump would support such reasoning, no. Good luck with that, huh? Well, let's just assume, Professor, for the sake of conversation, that they raise rates in September. How will the market react? I think the market will react negatively at first, but then positively, because it will be happy that the Fed is taking steps to control these rates.

Again , let's hope the roof on Pennsylvania Avenue holds up and we don't get a significant increase in tolls. Provided it stays under control. Because, after all , you know, the authority of the central bank in the fight against inflation matters . Now, again, let's not forget about next week, Wednesday: we will have PPI data and the very important CPI.

But we know that Waller outlined a limit on whether it would be 0.2 or 0.3. So, I mean, there's still some very important data that needs to, you know, come out. But if you look at the futures markets, long-term bonds, two-year notes...and by the way, as you know, I watch the money supply—that's something that Kevin Warsh actually mentioned in his speech at Jackson Hole as an important factor.

Since the start of the Iran war, the M2 money supply has been growing at 10% per year, which is excessive. And to me, that actually means he's going to start raising those rates.