Jeremy Siegel says a recession is 'virtually 100%' assured if the Fed keeps hiking rates next year

• Jeremy Siegel thinks a recession is nearly guaranteed if the Federal Reserve keeps tightening into 2023.
• He told CNBC on Tuesday that he expects a 50-basis-point hike in December and hopes the Fed stops there.

Wharton professor Jeremy Siegel warned that a recession is all but guaranteed if the Federal Reserve keeps tightening monetary policy into next year.

Speaking with CNBC on Tuesday, he predicted a 50-basis-point increase at the December Fed meeting, down from four straight 75-basis-point hikes, driven by encouraging price data.

But Siegel hopes the Fed pauses after that, pointing to data last week showing a seventh consecutive month of declining money supply that he described as the biggest drop since World War II.

"This is a very restrictive policy that if they try to keep this restriction going through next year, a recession is virtually 100%," he said. "But I think they're going to pivot once they see the weakness in the data come through."

Siegel has been warning that the Fed relies too much on backward-looking inflation indicators that don't capture the effects that rate hikes are having.

Reliance on lagging data means the Fed could be tightening too much, while more forward-looking indicators show steeper declines in inflationary pressure, he has said.

The Fed has already hiked the benchmark rate from near zero to 3.75%-4% this year, and analysts see continued increases that would bring it to around 5%.

Last week, Siegel said that the longer the Fed delays its pivot, the deeper a recession and earnings decline will be next year. Yet he still hasn't given up hope of the US economy staying afloat and said he wouldn't be surprised if the Fed brings rates back down to 2% by the end of 2023.

"There is still a small chance we can avoid a recession, if the Fed recognizes the inflationary impulse and pressures are over and eases off the brakes," he said.