Wharton professor Jeremy Siegel says he’s disappointed with the Fed’s hypocrisy about inflation, and that Jerome Powell will cut interest rates next year.

  • Wharton professor Jeremy Siegel is not happy with the Fed hawks who were cabled at the FOMC meeting on Wednesday.
  • Siegel said the Fed is contradicting itself because it is focused on crushing wages, which are rising due to supply-side problems.
  • Siegel ultimately expects the Fed to cut interest rates in 2023, not raise them.

Calling out the Fed’s hypocrisy toward fighting inflation, Wharton professor Jeremy Siegel telegraphed the continued hawkishness at its December meeting on Wednesday.

Specifically, Siegel pointed to the fact that when inflation was rising after the COVID-19 pandemic due to supply-side issues, Federal Reserve Chairman Jerome Powell insisted that inflation was temporary and not worked against it by raising interest rates.

But now Powell is doing the exact opposite when it comes to the structural supply-side issues that plague the labor market.

“He’s now saying there are supply-side problems in the labor market that could push up wages, and we have to crush wages in order to stop inflation. That’s totally inconsistent as part of monetary policy,” Siegel told CNBC on Thursday. “The Fed is not supposed to act on structural shifts in supply-side problems.”

Siegel said he was disappointed with Powell’s hawkish telegraph at the FOMC meeting on Wednesday, which included a 50 basis point rate hike.

“I was very disappointed in Powell in his logic and justification for this very hawkish policy. Housing data is lagging behind, home prices are already coming down, but we won’t see it until the middle of next year. So we’ll wait until the middle of next year before we decide if we need to,” he acknowledged. To pause price hikes, even though we know that today?” Siegel said.

“I think we need to get out of this year-over-year view of inflation. Remember, when we get year-over-year, we get 11 months of old data, only one month of new data, and really only one month of data. [Powell] He admits, particularly in the housing sector, it’s far behind,” Siegel said.

The Fed’s backward views ultimately set them up for disaster yet again, according to Siegel, who noted that at last year’s Fed meeting, only two Fed members thought the federal funds rate should be higher than 1%. By the end of 2022. Today, the Federal Fund rate is above 4%.

“I think they’d be completely wrong in the opposite direction,” Siegel said. “They were too loose before, and the money rate would have had to go up a lot. Now they’re too tight.”

This is exactly why Siegel expects the Fed to cut interest rates by mid-2023, rather than continue to raise them.

“Maybe there is [a] 25 basis points [hike] At the February 1 meeting. I don’t think there should be this. Perhaps this is the last. You can be sure that next year they will talk about lowering prices.

“I think the first rate cut could really happen closer to the middle of the year, and it could be quick after that because the labor market is really softening and inflation is coming down. I’m actually taking a risk that we might see a 2 handle on the Fed funds rate by Next Dec. I think it’s like a surprise to the upside, maybe we’ll see a surprise to the downside.

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