Wharton’s Jeremy Siegel says a half-point rate hike is on the table with another strong jobs report

Published Tue, Feb 21 202310:31 AM EST

Another surprisingly strong jobs report could prompt the Federal Reserve to hike interest rates by half a percentage point next month, according to Jeremy Seigel, a closely followed finance professor at the University of Pennsylvania's Wharton School. "I will admit I was struck by the strength of the January payrolls," Seigel said Tuesday on CNBC's " Squawk Box ." "I will say if it's as strong as we got in January, yeah, 50 is definitely on the table. I don't think it will be." Nonfarm payrolls increased by 517,000 for January for their biggest gain since July. The jobs report came a few days after the Fed raised its benchmark interest rate by a quarter percentage point to a target range of 4.5%-4.75%, the highest since October 2007. Seigel said if the February jobs report shows a big slowdown, the central bank would raise rates by just a quarter percentage point. The data is set for release on March 10, and the Fed's next two-day policy meeting starts on March 21. The stock market staged a big comeback at the start of 2023, with the S & P 500 scoring its best January in four years. Seigel said the market strength came from smaller risk of a recession on the back of the resilient labor market. .SPX YTD mountain S & P 500 "At the same time that this makes rates higher, and also lowers the probability of a recession," Seigel said. "So it is more likely that the earnings estimates are going to be realized than they were before." Traders are betting that there's a 79% chance that the Fed would approve a quarter percentage point interest rate hike at its March meeting, and a 21% chance of a 50-basis-point increase, according to CME Group data . The solid jobs market "means the Fed might tighten, and that's why you really saw almost a standoff on the stock market now," Seigel said. In 2022, the Fed approved four consecutive 0.75 percentage point moves before going to a smaller 0.5 percentage point increase in December. At the December FOMC meeting , committee members indicated they see the "terminal rate," or point where the Fed thinks policy is sufficiently restrictive, as 5.1%.