Wharton professor Jeremy Siegel says he sees a stronger US economy ahead – and suggests investors should stop throwing temper tantrums over high inflation
Wharton professor Jeremy Siegel suggested investors should stop kicking up a fuss over high US inflation.
“We’ve had a lot of effect on prices in the first 12 months and people are all upset because it’s not down to 2%,” he said.
The veteran economist said he sees a stronger US economy than he did previously thanks to a strong jobs report.
Elon Musk, Paul Krugman, and Jeremy Siegel are warning the Fed risks hiking rates too high and tanking the US economy. Here’s where 7 experts see danger.
Elon Musk, Paul Krugman, and Jeremy Siegel say the Fed may be going too far with its rate hikes.
Bill Gross and David Rosenberg have also warned the central bank against tanking the US economy.
Here’s what 7 experts have said about the danger of an overzealous Fed.
Elon Musk, Paul Krugman, and Jeremy Siegel have warned the Federal Reserve risks going too far in its fight against inflation, raising the prospect of a painful recession.
Bill Gross, David Rosenberg, Robert Herjavec, and Ed Yardeni have also urged the US central bank not to hike interest rates too high, given the potentially devastating impact on the economy.
Here’s a roundup of the 7 experts’ cautions to the Fed:
Elon Musk
“The Fed is raising rates more than they should,” Musk said on Tesla’s third-quarter earnings call. “But I think they’ll eventually realize that and bring it back down again.”
The Tesla CEO and Twitter owner suggested the US central bank is overly focused on lagging indicators of inflation, and not paying enough attention to what’s ahead.
“The Fed is not listening, because they’re looking at the rearview mirror instead of looking out the front windshield,” Musk said.
Paul Krugman
“I see a strong case that the Fed has already done enough,” Krugman said in a recent column. “You want to shoot ahead of a moving target, not behind it.”
The Nobel Prize-winning economist pointed to the sharp decline in trans-Pacific shipping costs, plus flagging demand for apartments, as evidence of the inflation threat waning.
He also flagged the strong dollar’s dampening effect on US exports, and higher mortgage rates squeezing consumers and making houses less affordable.
“I’d argue that these indicators tell us that the Fed has already done enough to ensure a big decline in inflation — but also, all too possibly, a recession,” Krugman said.
Jeremy Siegel
“The Fed is slamming on the brakes way too hard,” Siegel said in a recent interview.
“The pendulum has swung too far in the other direction,” the Wharton professor added, referring to US monetary policy going from too loose to overly restrictive.
“If they stay as tight as they say they will, continuing to hike rates through even the early part of next year, the risks of recession are extremely high,” Siegel said.
Bill Gross
“The US and other economies cannot stand many more rate increases,” Gross said in a recent investment outlook.
Gross argued that huge amounts of government debt, and global headwinds such as the Russia-Ukraine war, meant that if the Fed hikes rates too far, it could “slay inflation but create a global depression.”
“If Fed stops at 4.5% then mild recession,” Gross tweeted this week. “If it goes to 5% or higher then significant US and global downturn.”
David Rosenberg
“I would posit that the Fed has already done the overkill,” Rosenberg said in a recent interview.
The Rosenberg Research founder suggested Fed officials have a “once burnt, twice shy” mentality after reacting too slowly to the inflation threat, so they’re overreacting now by raising rates too aggressively.
If the Fed continues to tighten its monetary policy, it could tank house prices, spark a credit crunch in the banking sector, weaken consumer spending, and make any economic downturn last longer, Rosenberg said.
Robert Herjavec
Consumers and enterprises are still spending money, but rising interest rates will eventually stifle that demand, Herjavec said in a recent interview.
“I worry we’re going to hit a wall, and the interest rates are going to catch up to us, and the whole thing is just going to stop,” the “Shark Tank” investor and Cyderes CEO said.
Herjavec added that he’s more worried about the Fed’s “maniacal drive with interest rates” than he is about inflation.
Ed Yardeni
“I think the Fed has to be really careful here,” Yardeni said in a recent interview.
“If they keep going without pausing, it’s really going to create a real possibility of a significant recession,” he added.
The Yardeni Associates boss pointed to declining food and energy prices as evidence that inflation is on the decline. He noted the Fed’s tightening has already hammered the housing market, and fueled the stock-market’s sharp decline this year.
8/8 SLIDES
Investors should stop being so vexed about US inflation because the economy is stronger than ever, according to Wharton professor Jeremy Siegel.
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The veteran economist spoke after Tuesday’s inflation report showed price pressures still remained stubbornly high. The US Consumer Price Index rose 6.4% in January from a year earlier, just shy of December’s annual change of 6.5%.
But that’s not all bad news for Siegel. “It’s less than one year since the Fed starting tightening,” he stressed, in a CNBC interview on Tuesday. “We’ve had a lot of effect on prices in the first 12 months and people are all upset because it’s not down to 2%,” he continued, adding he’s surprised by the level of impatience among investors.
Last year, the Federal Reserve embarked on an aggressive interest-rate campaign to cool decades-high inflation down to its 2% target. It has lifted its benchmark rate by 450 basis points since last March.
“This is a long process to be sure, and it’s a process that the Fed has to let go through the market rather than stomping on it so much,” Siegel added.
Siegel noted that lagged housing market data is what held up January’s inflation reading. Shelter costs increased 7.9% last month from a year earlier, showing it was the largest contributor to the monthly all-items increase, according to the Bureau of Labor Statistics.
“I do see a stronger economy than I saw four weeks ago,” Siegel said. He added that there’s a higher chance of a “no landing” scenario than the Fed achieving a “soft landing,” thanks to a strong US jobs report.
A “no landing” scenario implies the economy that can avoid a recession, but faces risks of further monetary policy tightening ahead.
