One of the few market analysts that anticipates stock market improvements in 2023 is Jeremy Siegel.
In an interview with CNBC last week, the Wharton professor lambasted the Fed and provided his 2023 projections.
Here are the top nine quotes from Siegel’s discussion of the stock market, economy, and inflation.
Professor Jeremy Siegel of Wharton has been outspoken in his belief that the Federal Reserve’s excessive interest rate increases could have a long-term negative impact on the economy as investors become increasingly apprehensive about a possible recession.
However, in contrast to other stock market projections, his prognosis for 2023 is actually bullish and calls for an increase of at least 20%. This is so that investors won’t overestimate the economy’s resilience and his predictions that inflation will collapse.
In a lengthy interview with CNBC last week, Siegel discussed his predictions for the stock market, the economy, and why Fed Chairman Jerome Powell might be making a serious error.
1. Reasons why wages aren’t causing inflation in general
“Over the previous year, wages increased by 5%. It is 8% right now. Workers are attempting to catch up but are failing. They continue to lag far behind. I find it disturbing that the Fed’s strategy
is to reduce wages to the point where they drop back to 2%, effectively telling workers that they won’t be able to keep up with inflation because we’ll stop them from doing so. What a crazy policy that is “said Siegel.
“So this idea that the worker trying to catch up because he’s lost so much purchasing power is something the Fed has to crush,” the economist said, “seems to me to be extraordinarily bad Fed
policy, and I don’t think it’s inflationary because inflation occurs when wages jump ahead of prices, not when they lag behind prices.”
2. Regarding Wednesday’s Fed rate decision:
“It appears to be 50 [basis points]. The information will be available, and there won’t even be any [rate increases] in February. If it occurs, yeah, that’s great for bonds, stocks, and stocks… You
understand that I believe you don’t require more than these 50 basis points. This 50 basis points may be excessive on its own.”
3. Reasons for Siegel’s harsh criticism of the Fed
“Yes, I have a negative view of the Fed. To put it bluntly, this Fed expanded liquidity more than any other time in history, which generated the inflation, and is essentially telling the worker, “We’re not
going to let you catch up to the inflation that I caused.” I think that’s a slap in the face of the American worker. I simply don’t believe that is acceptable.”
4. Future trends in inflation
“I continue to think [inflation is over]; every other pricing trend I observe is downward. My opinion that inflation is essentially over hasn’t changed. The Fed shouldn’t be establishing policies to undermine catch-up wages, which are now being paid. There is a tonne of evidence that inflation is slowing.”
5. Future prospects for yields
“Bond yields, in my opinion, will continue to decline because I anticipate less economic growth. This [November jobs] report wasn’t particularly exciting. Additionally, inflation will be slowing down. Both of those are advantageous for equities as well as bonds.”
6. Future directions for the federal funds rate
“I know I’m putting my neck on the line, but I wouldn’t be shocked if the fed funds rate was under control by the end of the following year. I’m aware that’s wildly out of the mainstream. But all I’m
saying is that once we have this data, we’ll move extremely rapidly.” Currently, the effective fed funds rate is 3.8%.
7. Regarding when the Fed will start lowering rates
“The topic won’t be whether there will be an increase of 25 basis points or what else. The question is: When will we lower the rate? That might happen as soon as the spring.”
8. Concerning the likelihood of a 2023 recession
“Earnings are crucial, to put it mildly. We will enter a recession if the Fed maintains its tight monetary policy. Earnings [per share for the S&P 500] won’t be $230; instead, they’ll be $200 or $190 for a few years or a year and a half “said Siegel.
“The GDP for this year will be less than 1%. That is not powerful. At the moment, there is no recession. But if [the Fed] increases it to 6%, you will have it.”
9. Regarding the possibility of economic expansion in 2023
“Despite 4.5 million new employees, the GDP has barely increased. I think next year we’re going to have significantly smaller payroll growth, and much stronger GDP. Because in 2023, the historic
productivity decrease we experienced this year will be reversed… Productivity will increase, improving margins and boosting earnings.”