- The threat of inflation is over, but unemployment is set to jump, Jeremy Siegel said.
- The US economy can still avoid a recession with the Fed’s help, a Wharton professor claims.
- Siegel suggested the stock market has already bottomed and could jump 15% next year.
The threat of inflation has faded, unemployment will rise and the U.S. economy may yet avoid a recession, Jeremy Siegel said in a series of interviews and commentary published this week.
The Wharton finance professor and author of “Stocks for the Long Run” has aggressively criticized the Federal Reserve for hiking interest rates 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 12 of this week’s best Siegel quotes, divided by topic and lightly edited for length and clarity:
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 lagged housing data.)
2. “Inflation, as I said a month ago, is over.”
3. “We could actually see a quick softening of the labor market as they realize they no longer need to hoard labor.” (Siegel argued that employers hired excess labor during the pandemic because they were worried about a shortage of workers, but as those fears eased and productivity rose, they could cut back.)
4. “Employment has yet to soften significantly, but I think the jobs data is likely to deteriorate significantly and quickly.”
The Fed’s interest rate policy
5. “They’ll go right wrong in the opposite direction. They were too weak before, the funds rate had to go way up. And now they are too limited.” (Siegel warned that the Fed had overreacted to inflation and raised interest rates too much.)
6. “I think the first rate cut could happen closer to the middle of the year, and it could be quite quickly as the labor market really eases and inflation comes down. Federal funds rate until next December. I think, like the surprise on the upside, we could see a surprise on the downside.” (Siegel suggested the Fed could cut its benchmark interest rate from today’s 4% to below 3% by the end of next year.)
The stock outlook
7. “I think we saw the low in June or October. Even a mild decline won’t reduce earnings 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 have a good 10%, 15% rally going into the stock market.”
9. “People are saying this is the most anticipated recession ever. When too many people predict something, it often drives the market down from its fundamental values. A lot of bad news is now factored into prices. Surprises are more likely to be upside. than the downside.”
10. “I’ve never seen such a fall. That means this is a good opportunity for investors.”
11. “There is a chance we can avoid the worst of the recession, but that requires the Fed to recognize the deflationary forces I see everywhere.”
12. “We’re not going to have a strong labor market, but we can have stronger GDP, and we can have stronger margins, and we can’t have a recession.” (Siegel suggested that fewer but more productive workers could support economic growth and corporate profit margins against inflation, helping the U.S. avoid recession.)
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