’YOLO’ may be the last good stretch in the consumer economy

• Wharton Professor Jeremy Siegel wrote that the economic slowdown is largely due to summer spending.
• But the central bank should not raise rates because of this, as consumer activity may slow in September or October.
• „It’s 'YOLO’ (you only live once) consumers travel and enjoy the summer.”

The economy appears strong despite high interest rates because summer has brought out a certain class of spenders, Jeremy Siegel said Monday.

„The economy appears to be moving steadily forward, with a resilient consumer unable to resist the impact of high borrowing costs. It’s 'YOLO’ (you only live once) consumers traveling and enjoying the summer,” the Wharton professor wrote in his post. Weekly Commentary on the Wisdom Tree.

But he warned that this was not meant to last and could be one of the final stretches of strength in the economy. Eventually, summer ends and school is back in session, while consumers grapple with credit card payments and markets face historically „dicy periods” from September to October, Siegel said.

He said that because summer represents a temporary boost in spending, the Federal Reserve should refrain from further raising interest rates, rather than basing future action on signs of an economic slowdown.

For example, Friday’s jobs report included higher-than-expected wage gains, supporting the Fed’s hawkish view. But he noted that view could change quickly.

„The Fed only needs to look back at its own experience of calling deflation temporary to see how long it will take for inflation to return — and if there is weakness in the economy, it could come faster,” he wrote.

Siegel has repeatedly criticized the Fed’s continued hawkishness in light of falling inflation rates. And Wednesday’s consumer price index report is expected to provide a fresh sign of a slowdown.

Meanwhile, markets are heading for a bit of a stalemate, with Siegel predicting a second half of 2023 that won’t be great but won’t be bad either.

„There will be a battle in market dynamics between recession fears and recessionary sentiment, with the Fed likely to respond by bringing accommodation and cutting rates,” he wrote.