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The ‘YOLO’ Economy: A Short-Lived Boost, and What Lies Ahead, According to Wharton’s Jeremy Siegel

The economic winds have been blowing favorably this summer, driven largely by a vibrant consumer class armed with a ‘YOLO’ (You Only Live Once) mentality. But according to Wharton Professor Jeremy Siegel, this might be one of the last robust periods we witness for a while.

In his recent WisdomTree commentary, Siegel painted a picture of an economy bustling along smoothly, invigorated by consumers seemingly unfazed by the sting of higher borrowing costs. “The economy looks like it is progressing smoothly, with a resilient ‘YOLO’ consumer out traveling and enjoying the summer,” he observed.

But, in a tone of caution, Siegel highlighted that this could be a fleeting phase, a brief burst of strength in an otherwise weakening economy. As summer fades into fall, school reopens, and credit card bills start piling up, the market tends to navigate through the historically tumultuous months of September to October.

While summer spending has surged, the seasoned professor argues that it shouldn’t compel the Federal Reserve to raise interest rates further. The central bank should remain cautious and not base its decisions on transient signs of economic resilience.

Siegel pointed to the recent jobs report, which revealed higher-than-expected wage gains – a potential red flag for inflation hawks at the Fed. But he underlined that the economic outlook can pivot rapidly. “The Fed needs to only look back at its own experience calling inflation transitory to see how long it could take for inflation to turn around—and once a weakening in the economy kicks in, it could come fast,” he cautioned.

The professor has been consistently critical of the Fed’s continued hawkish stance amid a dipping inflation rate. He anticipates that the upcoming consumer price index report could offer further evidence of the economic slowdown.

As for what’s next, Siegel predicts a likely stalemate in market dynamics in the second half of 2023. He foresees a struggle between fears of a recession and a slowdown, coupled with hopes that the Fed will step in with more accommodation and lower rates.

So, while the ‘YOLO’ economy might provide a temporary lift, it’s worth keeping an eye on the horizon. Investors and entrepreneurs should brace themselves for the rollercoaster that may follow this summer’s economic joyride.

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