Wharton professor Jeremy Siegel says most inflation data is coming in below expectations and the Fed's hawkish outlook is at odds with economic reality




jeremy siegel
jeremy siegel  
  • Inflation is improving and the Fed's hawkish view is at odds with the economy, Jeremy Siegel said.

  • He noted that 26 of 27 inflation indicators have been below expectations in the last month.

  • It could mean the Fed won't have to raise rates as much as many observers are expecting.

Federal Reserve Chair Jerome Powell stressed at Jackson Hole that the central bank wouldn't be bringing down rates anytime soon and that sustained tightening of policy is needed to bring down inflation - but that's at odds with what the data is showing, Wharton professor Jeremy Siegel said in an interview with CNBC this week.

Out of 27 inflation indicators that have been recorded over the past month, 26 have reported below expected figures, Siegel said. Most recently, the Institute of Supply Management's Prices Index clocked in at 60% in July, down 18.5-points from June's 78.5%. That's the fourth largest decline the index has recorded, and the largest slide in manufacturing since the Great Recession.

He added that the CPI typically lags behind real drops in prices and that real estate prices may also be coming down, though that will go unrecorded for some time as well.

"The inflation news is on really on the ground, really coming in really well, and that's why I was shocked when Powell was acting last Friday like things are getting worse and worse and worse," Siegel said in an interview with CNBC on Wednesday.

Though Siegel had warned the economy had an inflation problem as early as 2020, he's been outspoken in recent months about the Fed's need to slow down its rate hikes, as central bankers risk overtightening the economy. At the September Federal Open Markets Committee meeting last year, half of FOMC members said there was no need to raise rates into 2022, and the most hawkish prediction was a 50-point rate hike, Siegel pointed out. The Fed has hiked the effective federal funds rate by 150 points this year so far.

"So do they really have the ability to see the future? Not really … it was just a year ago that everyone said I'm not even thinking about thinking about raising rates," he said.

Siegel said that central bankers would soon start to slow down the pace of rate hikes as more inflation news data to light, and the Fed only needs to hike another 100 basis points this year before pivoting. The current policy rate is 2.25%-2.5%.

"I don't think they need to go higher than that. And steering the market by saying, 'We're going to stay high through 2023' when they have no idea what's going to be happening in 2023. It was really not a good image to project," he said.

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