U.S. inflation, as measured by the Consumer Price Index, rose 7.1 percent year-on-year last month, and Federal Reserve Chairman Jerome Powell said this week that “substantial additional evidence” is needed that inflation is “sustainably declining.” “.
But Wharton business school (Wharton) professor Jeremy Siegel said that the CPI data is not representative of reality.
“No matter what Fed Chairman Jerome Powell describes, inflation in the U.S. is basically over,” he told CNBC on Friday.
Siegel cited the recent decline in rents and home prices as evidence that most of the inflationary pressures facing the economy have disappeared. Throughout 2022, he believes Fed officials are looking at outdated data when assessing the housing market, skewing their forecasts for the current level of inflation in the U.S. economy.
Siegel said the Fed has “made a serious mistake” by continuing to raise interest rates while inflation has fallen from a four-decade high.
“I don’t see any reason to raise rates further,” he said on Friday. He said the effects of this year’s rate hikes have yet to be felt in the economy and that consumer prices will fall sharply as they do.
He added: “I think the argument for raising rates and keeping them high would certainly trigger a very deep recession.”
Asked about the possibility of rising wages leading to high inflation next year, Siegel noted that Americans’ wages are actually falling during the pandemic when inflation is factored in.
“Real wages have been falling. I don’t see the possibility of them pushing up inflation when real wages simply don’t match inflation,” he said.
Real wages, or inflation-adjusted wages, fell 1.9 percent last month from a year earlier, the Bureau of Labor Statistics reported Tuesday. That lags well behind the average annual real wage growth rate of 2 percent since World War II, Siegel said.
Siegel also pointed to “structural changes” in the labor market in recent years, with the overall share of U.S. workers at work shrinking, a problem he also believes raising interest rates by the Fed won’t help.
“If people don’t want to work, companies have to offer higher wages to get people to work,” he said. “It’s not the Fed’s job to hold back the economy because it’s a structural change in supply. The Fed has to be concerned with aggregate demand, not supply.” The change.”
Siegel’s latest prediction sounds plausible, as he has made several prescient predictions over the past few years.
In June 2020, Siegel, a Wharton professor, told Barry Ritholtz, chief investment officer at Ritholtz Wealth Management, that inflation was going to rise, and the Fed didn’t predict that. question.
“I think for the first time that we’re going to have inflation, I know it’s an extreme minority view, and it’s the first time I’ve had that view in over two decades,” he said. Zero interest rates overstimulate the economy.
It turns out that Siegel’s prediction was correct. Inflation has soared from just 0.6% when he made his forecast to more than 5% in less than a year.
But now, he believes Fed officials are not doing enough to slow the pace of rising consumer prices, and he has recently worried that the Fed’s rate hikes could end up dragging the U.S. economy into recession.
However, should the Fed pause or choose to cut rates sometime next year, Siegel sees a 15% to 20% gain for the S&P 500 . (Fortune Chinese website)
Translator: Liu Jinlong
Reviewer: Wang Hao
Inflation, as measured by the consumer price index (CPI), rose 7.1% from a year ago last month, and Federal Reserve Chairman Jerome Powell said this week that it will take “substantially more evidence” to prove that it’s on a “sustained downward path.”
But Wharton professor Jeremy Siegel says the CPI figure doesn’t represent reality.
“Inflation is basically over, despite the way Chairman Powell characterizes it,” he told CNBC on Friday.
Siegel points to falling rent and home prices as evidence that the majority of inflationary pressures in the economy are already gone. Throughout 2022, he has made the case that Fed officials are looking at backward data to assess the housing market, which gives them a false picture of the current level of inflation in the economy.
The Fed is “making a terrible mistake” by continuing to raise interest rates even as inflation comes down from its recent four-decade high, according to Siegel.
“I see no reason to go any higher than we are now,” he said on Friday, arguing that this year’s interest rate hikes have yet to be felt in the economy, and as they are, consumer prices will drop sharply.
“The talk of going higher and staying higher, I think, would guarantee a very steep recession,” he added.
When asked about the potential for rising wages to cause inflation to be sticky next year, Siegel pointed out that when accounting for inflation, Americans’ wages have actually fallen throughout the pandemic.
“Real wages have gone down. It’s hard for me to see that they’re pushing inflation up when they don’t even match inflation,” he said.
Real wages—or wages adjusted for inflation—dropped 1.9% from a year ago last month, the Bureau of Labor Statistics reported Tuesday. That’s a far cry from the 2% average annual real wage growth seen since World War II, Siegel said.
Siegel also noted that there has been a “structural shift” in the labor force in recent years that involves a smaller overall percentage of Americans working, and argued that the Fed’s interest rate hikes won’t help solve it.
“If people don’t want to work, then firms have to offer higher wages in order to induce them to work,” he said. “It is not the Fed’s job to suppress the economy because there is a structural supply shift. They take care of aggregate demand, not shifts in supply.”
It may make sense to listen to Siegel’s latest forecast, because he’s made some prescient predictions over the past few years.
In June of 2020, the Wharton professor told Barry Ritholtz, chief investment officer of Ritholtz Wealth Management, that inflation was set to rise and argued the Fed wasn’t anticipating it.
“I think for the first time, and I know this is a sharp minority view here, for the first time in over two decades, we’re going to see inflation,” he said, claiming that Fed officials had overstimulated the economy with years of near-zero interest rates.
Siegel turned out to be right. Inflation soared from just 0.6% when he made his forecast to over 5% in under a year.
But now, he says that Fed officials have done enough to slow rising consumer prices, and his new fear is that they may ultimately drive the US economy into a recession with interest rate hikes.
However, if the Fed decides to pause or cut rates sometime next year, Siegel believes the S&P 500 will rally 15% to 20%.
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