- Jeremy Siegel is one of the few market experts who predicts a stock market gain in 2023.
- The Wharton professor grilled the Fed and outlined his 2023 predictions in an interview with CNBC last week.
- Here are the nine best quotes from Siegel’s interview that address inflation, the economy and the stock market.
Wharton professor Jeremy Siegel has been vocal that the Federal Reserve’s rate hikes could cause long-term damage to the economy as more and more investors worry about a recession.
But unlike other stock market forecasts, his 2023 forecast is actually bullish and calls for a rise of at least 20%. This is because he sees falling inflation and a resilient economy that too many investors underestimate.
In an extended interview with CNBC last week, Siegel outlined his views on what will happen to the stock market and the economy next year, and why Fed Chairman Jerome Powell could make a big mistake.
Here are the nine best quotes.
1. On why wages don’t drive overall inflation:
“We’ve had 5% year-over-year wage growth. We’ve had 8% inflation. Workers are trying to catch up and they’re not. They’re still way behind. It just bothers me to think that the Fed’s policy is to crush wages so they go back down to 2%, basically saying to workers, ‘you’re not going to chase inflation, and we’re going to stop you from chasing inflation.’ That’s crazy policy,” Siegel said.
“So this idea that the worker is trying to catch up because he’s lost so much purchasing power is something that the Fed needs to crack down on, to me, is really bad Fed policy, and I don’t think it’s inflationary, because it’s inflationary when wages go up. ahead of price, not when they lag behind.”
2. On Wednesday’s Fed rate decision:
“My feelings are 50 [basis points]. Data will come in, and they will have nothing [rate hikes] in February. If that happens, wow that’s great for stocks, great for bonds and stocks… You know my feeling is you don’t need more than this 50 basis points. This 50 basis points is probably too much by itself.”
3. On why Siegel is so critical of the Fed:
“Yes, I’m very critical of the Fed. Frankly, it’s the Fed that causes inflation by expanding liquidity more than at any other time in history, basically speaking as if, to the workers ‘we’re not going to let you chase the inflation that I’m causing .’ That’s a slap in the face to the American worker, in my opinion. I just don’t think it’s fair.”
4. Where inflation goes from here:
“I still believe [inflation is over]… everything else I see on the price front [is down]… I have not changed my view that inflation is basically over. These are fast wages, and the Fed should not be setting policy against them… There is overwhelming evidence of slowing inflation.”
5. Where the revenue goes from here:
“I think [bond yields] will continue to decline, because I think we will experience slower growth. This is not hot [November jobs] report. And we will experience slow inflation. Those are two good things for bonds, and they’re also good for stocks.”
6. Where does the federal funds rate go from here:
“I’m really holding firm here, but I wouldn’t be surprised at the end of next year that we have 2 holds on the fed funds rate. That’s outside the consensus, I know that… But I’m just saying when we put this data in, we’ll go down quickly.” The effective fed funds rate is currently at 3.8%
7. When the Fed will start cutting rates:
“That talk isn’t going to happen is it going to be a 25 basis point hike or what. It’s going to be when are we going to lower rates? That could come as early as the spring.”
8. Regarding the potential recession in 2023:
“Earnings are important, at least. If the Fed stays tight, we’re going to have a recession. Earnings aren’t going to be $230 [per share for the S&P 500]they’ll be $200, or $190 for a couple of years or a year and a half,” Siegel said.
“GDP this year will be below 1%… That’s not strong. It’s not a recession, not yet. But if [the Fed] to 6%, you will have it.”
9. Regarding potential economic growth in 2023:
“We have 4.5 million new workers and almost no GDP growth. I think next year we will have much lower wage growth, and better GDP. Because the record productivity decline we had this year will reverse in 2023. .. Productivity will increase, which increases margins and that’s good for profits.”