Wharton’s Siegel on Inflation, the Federal Reserve, Stocks, Unemployment, and the Recession
- The threat of inflation has passed, but unemployment will rise, said Jeremy Siegel.
- The US economy can still avoid a recession with the help of the Fed, the Wharton professor argued.
- Siegel suggested that the stock market has already bottomed out and could rise 15% next year.
The threat of inflation has faded, unemployment will rise and the US economy may yet escape a recession, Jeremy Siegel said in a statement. burst from interviews Y commentary released this week.
The Wharton finance professor and author of “Stocks for the Long Run” criticized the Federal Reserve for raising rates too aggressively in response to rising prices. Furthermore, he suggested that the US stock market has already bottomed out and could rise as much as 15% next year.
Here are Siegel’s 12 best quotes this week, broken down by topic and lightly edited for length and clarity:
Inflation
1. “It’s negative now, it’s going to be negative next month, and it’s actually been negative for the last two months.” (Siegel was referring to the core Consumer Price Index, which excludes volatile food and energy prices. He noted that it would be negative if it included current rather than retrospective housing data.)
2. “Inflation is, like i said a month agoon.”
Unemployment
3. “We could really see a quick softening of the job market as they realize they don’t have to hoard labor anymore.” (Siegel argued that employers overhired during the pandemic because they were concerned about worker shortages, but as those fears subside and productivity rises, they may slash headcount.)
4. “Employment has yet to soften noticeably, but I think the employment data is likely to deteriorate significantly and rapidly.”
The Fed’s interest rate policy
5. “They’re going to be wrong in exactly the opposite direction. Before they were too loose, the funds rate had to go way up. And now they’re too tight.” (Siegel was warning that the Federal Reserve has overreacted to inflation and raised interest rates too much.)
6. “I think the first rate cut could take place closer to the middle of the year, and then it could be quite quickly, as the job market really eases and inflation comes down. In fact, I would venture that we could see a double lever on the Fed funds rate for next December. I think just like the surprise on the upside, we could be looking at a surprise on the downside.” (Siegel was suggesting that the Fed could cut its benchmark rate from above 4% today to below 3% by the end of next year.)
Prospects for shares
7. “I think we’ve seen the bottom in either June or October. Even a mild recession wouldn’t drive earnings down enough to trigger a new low in the stock market.”
8. “When the Fed gets it, and they will get it next year, I think we’ll have a nice 10%, 15% rally for the stock market.”
9. “People say this is the longest-anticipated recession in history. When too many people forecast something, it often drives the market below its fundamental values. A lot of bad news is now factored into prices. Surprises are more likely to be up than down.”
10. “I’ve never seen so much downtrend. That excess of downtrend means this is a good opportunity for investors.”
The risk of recession
11. “There is a chance that we can avoid the worst of a recession, but that requires the Federal Reserve to recognize the disinflationary forces that I see everywhere.”
12. “We’re not going to have a strong job market, but we may have stronger GDP and stronger margins, and we may not have a recession.” (Siegel was suggesting that fewer but more productive workers could prop up economic growth and corporate profit margins against inflation, helping the US avoid a recession.)