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Jeremy Siegel Says the Fed Is Making Its Worst Mistake in 110 Years

  • The Fed is making the exact same mistake it was a year ago, and arguably the biggest mistake in its history.
  • That’s according to Jeremy Siegel, who criticized the Fed’s inability to recognize that inflation is on the decline.
  • “I don’t feel like it at all, way too tight!” said Siegel.

Wharton professor Jeremy Siegel has a big problem with the Federal Reserve’s aggressive rate hikes in its bid to tame inflation, and worries that the central bank is making the biggest mistake in its history and could trigger a steep recession.

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That’s because, according to Siegel, inflation is beginning to fall significantly and the Fed is still making progress with its rate hikes.

“The last two years [are] one of the biggest policy mistakes in the Fed’s 110-year history, by remaining so easy while everything was thriving,” Siegel said.

On Wednesday, the Fed raised interest rates by another 75 basis points and said it expects further rate hikes by early 2023, according to its updated dot plot.

“If all commodities are rising fast, Chairman Powell and the Fed said, ‘We don’t see inflation. We see no need to raise interest rates in 2022.’ With all those same commodity and asset prices falling, he says, “Inflation intractable that should keep the Fed tight through 2023.” I absolutely don’t feel like it, way too tight!” Siegel said in an interview with CNBC on Friday.

Siegel pointed out that oil prices have fallen to levels not seen since the beginning of 2022, prior to the Russian invasion of Ukraine, and that house prices and construction activity are beginning to fall.

“The only thing that isn’t going down is wages, and by the way, wages are catching up. Don’t pretend they’re driving inflation, they’re lagging behind inflation. I mean, workers are trying to recoup a little bit inflation is,” Siegel said.

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“Why is he putting the burden on these working people, on the working people, when all other commodity prices are falling,” Siegel said passionately.

“I think the Fed is just way too tight. They’re making the exact same mistake on the other side that they made a year ago,” Siegel added.

According to Siegel, the Fed has an incredibly poor track record of accurately predicting where interest rates will lie just a few months into the future.

Exactly one year ago this week, the average expectation for the Fed funds rate at the end of 2022 was less than 1% and at the end of 2024 at 1.75%. from 3% -3.25%, and is expected to be at 4.5% by the end of this year.

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Siegel expects the Fed’s over-tightening measures to continue to weigh on stock prices, and if the Fed’s measures continue through 2023, “you could have a major recession on the other side,” Siegel said.

“I’m very upset. It’s like a pendulum. They were way too easy until 2020 and 2021, and now [impersonating the Fed] “we’ll be real tough guys until we crush the economy.” I mean, that’s just absolute to me, bad monetary policy would be an understatement,” Siegel said.

“Why is he putting the burden on these working people, on the working people, when all other commodity prices are falling,” Siegel said passionately.

Siegel expects the Fed to “eventually see the light” as none of their recent forecasts are likely to come true.

“I think they will be forced to [interest] prices much faster than they think,” said Siegel, a move that could build stocks for a possible recovery from their ongoing decline.

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