Why the Fed is being blamed for the historic stock-market plunge

"I don't think Iran or Japan is the source of this slowdown. I think it's in Washington DC at the Federal Reserve building," Jeremy Siegel said.

• The Federal Reserve is catching some heat for the historic stock market plunge.
• Experts argue the Fed's decision to leave rates unchanged at its last meeting contributed to the chaos.
• Calls for steep rate cuts highlight concerns over the Fed's delayed response to a slowing economy.

The Federal Reserve is to blame for the historic stock market plunge since last week, according to a growing chorus of market experts.

The S&P 500 dropped as much as 7% since the Federal Reserve left rates unchanged at the current range of 5.25%-5.50% at its policy meeting last week.

The Nasdaq 100 was down as much as 10% over the same time period.

Wharton professor Jeremy Siegel told CNBC on Monday that the Fed is way behind the curve, arguing that they should implement 150 basis points over the next two months.

"I'm calling for a 75 basis point emergency cut in the Fed funds rate, with another 75 basis point cut indicated for next month at the September meeting, and that's minimum," Siegel said.

Siegel believes the Federal funds rate should be 3.50%-4%.

Siegel has long criticized Fed Chairman Jerome Powell for acting too late in raising interest rates during the inflation boom in 2021 and 2022, and now he thinks Powell is making exact mistake by waiting too long to cut interest rates.

"Since when has the Fed known anything about the economy?" Siegel asked. "Look at what happened three years ago. The market knows so much better than the Fed, so they've got to respond."

Siegel added: "If they are going to be as slow on the way down as they were on the way up, which by the way was the first policy error in 50 years, then we're not in for a good time with this economy."

When asked if any of the stock market decline was driven by the rising chances of Kamala Harris winning the November Presidential election, Siegel reiterated that the issue was firmly with the Fed rather than the coming presidential election or geopolitical tensions, as some commentators have suggested.

"I don't think the race, I don't think Iran or Japan is the source of this slowdown. I think it's in Washington DC at the Federal Reserve building, that's the source," Siegel said.

JPMorgan strategist Mislav Matejka said in a Monday note that the lack of Fed rate cuts in the first half of the year will weigh on economic growth in the second half, and that any coming interest rate cuts from the Fed likely won't be enough.

"The Fed will start easing, but more in a reactive way and as a response to weakening growth, i.e. it is likely behind the curve — this might not be enough to drive a rebound," Matejka said.

Yet, while the Fed may be "behind the curve," that could be by design.

That's because Powell wants to convince the market that even in the face of a potential recession, he is still determined to tame inflation, just like former Fed chairman Paul Volcker did in the 1980s.

"Powell has had it much easier than Volcker so far, but he still needs to deliver the same message. That is happening right now. Seeming to be behind the curve also helps Powell and the FOMC push back against the idea that its eventual rate cuts will be politically motivated," DataTrek co-founder Nicholas Colas said in a Monday note.

Regardless of what the Fed's motivation might be with waiting until September to cut interest rates, the market is taking away a pretty clear message.

"There is growing sentiment is that the Fed has waited too long to cut interest rates and is now behind the curve," Comerica Wealth Management CIO John Lynch said.