- Jeremy Siegel is one of the few market experts to expect stock market gains in 2023.
- The Wharton professor grilled the Fed and outlined his forecast for 2023 in an interview with CNBC last week.
- Here are the top nine quotes from Siegel’s interview on inflation, the economy, and the stock market.
Wharton professor Jeremy Siegel has been outspoken that the Federal Reserve’s outsized interest rate hikes could cause lasting damage to the economy as more investors worry about a recession.
Yet unlike other stock market outlooks, his forecast for 2023 is actually bullish, calling for at least a 20% rise. That’s because he sees collapsing inflation and a resilient economy that too many investors underestimate.
In a lengthy interview with CNBC last week, Siegel laid out his views on what will happen to the stock market and the economy next year, and why Fed Chairman Jerome Powell might be making a big mistake. .
Here are the nine best quotes.
1. Why are wages not driving headline inflation:
“We had 5% year-over-year wage growth. We have an inflation of 8%. The workers try to catch up and they don’t. squeezing wages back down to 2%, essentially telling the worker, “you’re not going to catch up with inflation, and we’re going to keep you from catching up with inflation”. It’s a foolish policy,” Siegel said.
“So this idea that the worker is trying to catch up because he’s lost so much purchasing power is something the Fed needs to crush, to me, is extremely bad Fed policy, and I don’t think not that it’s inflationary, because it’s inflationary when wages jump ahead of prices, not when they lag behind prices.”
2. On Wednesday’s Fed rate decision:
“My feeling is that it’s 50 [basis points]. The data will come in, and they won’t even have [rate hikes] in February. If that happens, wow that’s good for stocks, good for bonds and stocks… You know, my feeling is you don’t need more than 50 basis points. That 50 basis points might be too much on its own.”
3. Why Siegel is so critical of the Fed:
“Yes, I’m very critical of the Fed. To be blunt, here is a Fed that has caused inflation by increasing liquidity more than at any other time in history, essentially talking as if, at the worker’ we’re not going to let you catch up with the inflation that I caused. It’s a slap in the face for the American worker, in my opinion. I just don’t think it’s warranted.”
4. On where inflation goes from here:
“I still believe [inflation is over]…everything I see on the price [is down]… I’m not changing my view on the end of inflation. It’s about catch-up wages, and the Fed shouldn’t set policy to go against that…There’s tremendous evidence of slowing inflation.”
5. Where do the returns go from here:
“I think [bond yields] are going to keep going down, because I think we’re going to have slower growth. It wasn’t hot [November jobs] report. And we’re going to have a slowdown in inflation. Both are good for bonds, and they’re also good for stocks.”
6. On where the fed funds rate goes from here:
“I’m really sticking my neck here, but I wouldn’t be surprised by the end of next year if we have a 2 handle on the fed funds rate. That’s far from the consensus, I know that … But I’m just saying that when we have that data, we’re going to go down very quickly.” The effective federal funds rate is currently 3.8%
7. When will the Fed start cutting rates?
“The discussion will not be whether it will be a 25 basis point hike or what. It will be when are we going to lower the rate? It could happen as early as spring.”
8. On the potential for recession in 2023:
“Earnings are big, to say the least. If the Fed stays tight, we’re going into a recession. Earnings won’t be $230. [per share for the S&P 500]they’re going to be $200 or $190 for a few years or a year and a half,” Siegel said.
“GDP this year is going to be below 1%… It’s not strong. It’s not a recession, not yet. But if [the Fed] goes to 6%, you’re going to have it.”
9. On the potential for economic growth in 2023:
“We have 4.5 million new workers and almost no increase in GDP. I think next year we will have much lower payroll growth and much better GDP. Because this record drop in productivity than we’ve seen this year will reverse in 2023… Productivity will increase, it improves margins and it’s good for profits.”
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