- The Fed runs a higher risk of sparking a recession than falling behind on inflation, according to Jeremy Siegel.
- Markets are now expecting a fed-funds rate of 4.75% in May of next year.
The debate over whether the Federal Reserve will stick a soft landing for the economy or tip the US into recession is raging, with Jeremy Siegel stating on Monday that the risk of a downturn is now much higher than any "waffling" on inflation by the central bank.
"The Fed's tightening and their talk of super-tightening has just pushed markets way too extreme," the top economist said in an interview with CNBC on Monday. "[It's] so extreme I think the risk of recession is so much higher than waffling on inflation."
The central bank has shown no sign of easing its rate hike campaign since inflation reached 9.1% this summer, with Fed Chair Powell vowing to keep hiking rates until the "job is done".
That implies the Fed wants to get inflation back to its 2% target, but its heavy-handed approach has spooked markets and ramped up talk of a recession. After delivering another 75-point hike this month, stocks suffered their largest one-day decline in two years, and markets are now pricing in a policy rate of 4.75% in May of next year.
That's too high, Siegel believes, considering that inflation is already starting to cool. He pointed to the fact that official statistics, like the closely-watched Consumer Price Index, tend to lag behind actual inflation in the economy. Housing prices, which make up 50% of core inflation, are on the decline, as are commodity prices. Expectations for inflation two years from now are steadily declining.
Siegel has been a loud critic of the Fed's delayed reaction to inflation, which has ended up producing more aggressive rate hikes than some experts believe would have been necessary. He pointed that the labor market was showing the same level of tightness as it was in September of last year, when inflation was deemed a non-issue by Fed officials.
"It was exactly as tight as it is today, and he never said anything … Honestly, Chairman Powell I think should offer the American people an apology for such poor monetary policy that he's pursued and the Fed has pursued over the past few years," Siegel said.