The Fed will cease hiking interest rates if the labor market falters, Wharton professor Jeremy Siegel says

• The Fed will end its interest-rate hikes if the labor market starts faltering, Jeremy Siegel said.
• The finance professor said US weekly jobless claims will be the key data release this week.
• Inflation is fading so it would be foolish to hike rates at the cost of job losses, Siegel said.

The Federal Reserve has inflation on the ropes, and will finally halt its aggressive interest-rate hiking cycle if the labor market begins losing momentum, according to Wharton professor Jeremy Siegel.

Although the US central bank has been laser-focused on its fight against inflation, which has climbed to the highest rate in decades, it still has a "dual mandate" of maximizing sustainable employment and maintaining stable prices, Siegel said.

"We're going into political season. They have to be sensitive to what's going on in employment. If we begin to see any faltering on that labor market, they are going to give up their rate hikes," Siegel told CNBC on Friday.

The most important economic data coming out this week will be the US weekly jobless claims report on Thursday, which publishes the previous week's initial claims for state unemployment benefits, Siegel said.

"I always have taught and stated that the initial claims is a very sensitive early indicator," the retired finance professor said, explaining that he's keeping an eye on the labor market to determine the Fed's next move.

While investors expect the US central bank to halt its interest-rate hikes during its June 13-14 meeting, the market is still pricing in a quarter-point raise for July — and Siegel thinks that will lift rates too high.

The US central bank hiked interest rates for the 10th consecutive time last month, and has raised them from nearly zero to upwards of 5% since last spring. While inflation has cooled, it still remains well above the Fed's 2% target.

"The bulk of that inflation is behind us - that residual part. It would be foolish for the Fed to squeeze an extra point or two at the cost of millions of workers out of jobs, particularly in a political year," Siegel said.

He added that the Fed is using backward-looking indicators of inflation, including housing data that should look better in the second-half of the year.