Jeremy Siegel Expects Fed to Pivot Soon

News October 28, 2022 at 04:26 PM

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Wharton School economist Jeremy Siegel expects the Federal Reserve to "pivot" soon by acknowledging that inflation is declining, although he sees the central bank raising the benchmark interest rate by 75 basis points as expected next week.

"I think there's going to be a pivot soon," Siegel said Tuesday on CNBC's Squawk Box. "They're going to acknowledge that there has been a tremendous amount of progress made on inflation."

Dismissing the idea that stagflation — high inflation with very slow growth — will hit the U.S. economy next year, Siegel said, "I wouldn't be surprised to see a 2% [federal] funds rate by the end of 2023."

Real cooling in the housing sector isn't yet reflected in lagging Consumer Price Index core inflation data, Siegel noted.

While housing prices drove core inflation higher in data released two weeks ago, the S&P CoreLogic Case-Shiller Home Price Index issued shortly after Siegel spoke Tuesday, which he called the "real" index, showed significant cooling.

Siegel said he hopes the Fed doesn't raise the interest rate by another 75 basis points in December, and suggested even "75 and 50 and wait" isn't needed.

The market wants to see "a statement by the Fed that they see progress and at some point can afford to pause and see if that progress really makes it," he said on CNBC. "What scares the market the most is the Fed is going to stay this tight through 2023, which I absolutely think would be really a disaster for the economy."

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