Following Thursday’s inflation data, Wharton Professor Jeremy Siegel said the risk-reward has gotten better for investors.
The inflation numbers came right in line with expectations, but the details showed “overinflated” housing data because of the lag in the way the prices are computed, Siegel said in an interview with CNBC on Friday. While the inflation report put house prices at a positive 0.8%, all rental price indices and federal indices of housing were going down in the 0.5%-0.6% range, he noted.
If the actual housing data is incorporated into the inflation data, the core inflation would have been negative, he said.
The Fed will at some time be forced to realize that it has solved the inflation problem, and that’s why the market rallied, Siegel said. The central bank is “not going to stay anywhere near as tight as they claimed,” he added.
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“The market knows better than the Fed what is actually going to happen,” Siegel said. The market is indicating inflation is slowing down, and likely the economy is going to be slowing down, the professor added.
“I think there’s still a chance to avoid a recession if they pivot,” he said. He expects a 25-basis-point hike on Feb. 1 and hopes that it will be the last in the current tightening cycle. He premised his expectation on inflation, on a forward-looking basis, remaining very low.
Siegel also slammed Fed Chair Jerome Powell’s overconcern about wages, which he thinks have not caught up with inflation over the past 2-1/2 years since COVID-19 struck. Forcing wages down “is unfair to the workers and not something the Fed should be looking at right now,” he added.