- Jeremy Siegel touted stocks, brushed off inflation worries, and issued a fresh caution to the Fed.
- The Wharton finance professor said Fed Chair Jerome Powell’s inflation outlook was too pessimistic.
- Inflation has peaked, and the Fed risks a recession if it hikes interest rates too far, Siegel said.
Jeremy Siegel touted beaten-down stocks, shrugged off inflation fears, and warned the Federal Reserve that excessive interest-rate hikes could plunge the US economy into a deep recession next year.
“Stocks are approaching pretty attractive levels for long-term investors,” Siegel said in a Bloomberg interview this week. “Listen, you wouldn’t have those great long-term returns unless these short-term fluctuations scared so many people away and kept the prices relatively low.”
Indeed, Warren Buffett — arguably the ultimate long-term investor at age 92 — has plowed a record $50 billion on a net basis into stocks this year. His Berkshire Hathaway conglomerate, a net seller of stocks in 2020 and 2021, finally spotted some bargains including Chevron and Occidental Petroleum.
Siegel, a finance professor at the University of Pennsylvania’s Wharton School, told Bloomberg that real-world price increases are slowing, and Fed Chair Jerome Powell’s inflation outlook last week was too gloomy.
“On the ground, inflation has definitely peaked,” he said, noting that economic data lags reality and won’t capture the deceleration for a while. He asserted that house prices are declining, commodity prices have largely topped out, and wages have trailed inflation for years and need to be raised.
As a result, Siegel argued the Fed may only need to raise interest rates by 100 basis points, to between 3.25% and 3.5%, and it will curb inflation without choking the economy.
“The Fed has to be careful, just like they were way too slow to tighten in 2020 and 2021,” Siegel said. “Let’s not overdo it, overtighten, and cause a severe recession in 2023.”
The author and markets commentator added that Powell frightened investors with his hawkish inflation stance on Friday, when the economic reality in the US is much rosier.
Siegel has previously emphasized that inflation statistics are backward-looking, and the Fed risks driving stocks to fresh lows this year if it tightens its monetary policy too much.
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