It’s "odds on" that the Dow Jones Industrial Average closes out next year at 15,000, and there’s a 50/50 chance it will hit 17,000, Wharton School finance professor Jeremy Siegel told CNBC’s “Squawk Box”on Thursday.
“There are two major factors that are depressing our market 1,000 to 1,500 points,” he said. One is still Europe, he said, and the other is the looming "fiscal cliff," when a host of tax cuts and spending increases expire at year end.
Siegel noted that even the Congressional Budget Office says that going over the fiscal cliff could send us into a brief recession .
Siegel is optimistic that Congress will avoid the fiscal cliff and tackle the deficit. “I believe there’s going to be an extension for six, nine, maybe 12 months in the Bush tax cuts” for wealthy Americans. But he conceded that no one has an incentive to do much right now with the November election looming.
After that, Siegel said, “I think they'll sit down and do some serious work, and we're going to get some good reform next year.”
The Federal Reservealso has a greater role to play in providing stimulus for the economy. Siegel believes the Fed should follow the European Central Bank’slead and drop its interest rate on reserves to zero.
“We need to do every little thing we can do to encourage the banks to lend [reserves] out, and one of those things is to not keep that deposit rate at positive levels,” Siegel said.