Monday, October 18, 2021

Inflation ‘bigger problem’ than Fed: Jeremy Siegel

Wharton finance professor Jeremy Siegel said he thinks the Federal Reserve is underestimating the degree to which inflation will be a problem, possibly forcing the central bank into a sharp pivot away from stimulus and potentially closing the market. is forcing.

Siegel, known for his upbeat forecasts, made the disappointing prediction in an October 1 interview on CNBC, saying he thinks “we’re headed for some trouble ahead.”

“Inflation, in general, is going to be a much bigger problem than the Fed believes,” Siegel said, adding that he believes the persistence of higher prices will put the Fed in the process of rolling back the $120 billion or so. pressure to accelerate. Monthly purchases of Treasury and mortgage securities.

The Fed cut rates to nearly zero last year and launched its massive bond buying program to help propel the economy back from the pandemic slowdown, a process that has lifted financial asset markets as well. Siegel argued that if rising inflation prompts the Fed to move faster, investors can expect to withdraw the liquidity that has helped stocks and other instruments trade riskier assets, especially technical ones. That could mitigate the move in stocks, Siegel argued.

Siegel was bullish on price stocks and said he believes the shift toward cryptocurrencies like bitcoin as a perceived inflation hedge has left gold relatively cheap.

His remarks came after a Commerce Department report last week showed inflation remained red hot in August.

The headline personal consumption expenditure (PCE) index rose 4.3 per cent year-on-year to levels since 1991. Meanwhile, the Fed’s preferred inflation gauge, the so-called core PCE inflation index, which excludes volatile categories of food and energy, vaulted. 3.6 percent in the 12 months to August — well above the Fed’s 2 percent target and also a historically high number.

Fed Chair Jerome Powell last week spoke of the “tension” between inflation that is and well above target and the ongoing labor market sluggishness, which is trying to balance the Fed’s dual mandate of price stability and maximum employment. Policy challenge. His remarks raised fears of stagflation—a state of slow economic growth and rapidly rising prices that plagued the American economy in the 1970s.

Some economists have warned that rising energy prices are causing major damage to struggling supply chains, increasing the risk of stagflation. Others have expressed concern that supply-side problems combined with more generally over-easing fiscal and monetary policies and high debt ratios could lead to a full-blown inflationary crisis.

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Republicans have been particularly vocal in highlighting the inflation risk of large fiscal spending.

House Financial Services Committee member Rep. Warren Davidson (R-Ohio) told NTD’s “Capital Report” program in an October 2 interview that he has been warning of high inflation for some time. He acknowledged that the initial CARES Act served as a useful measure in the early stages of the pandemic, but with further packages spending has become excessive and added to inflationary pressures.

“Since then, Congress has continued to dump more money and more money on the problem,” said Davidson, who, like his GOP colleagues, opposes the Biden administration’s $3.5 trillion spending package.

While Fed officials have taken a more cautious stance on inflation in recent statements, they say it is a temporary phenomenon that will end once supply-chain dislocations ease.

Powell said in remarks on September 29 that he does not expect the current price jump to “lead to a new inflation regime in which inflation remains high year after year.”

At the same time, Powell expressed concerns about uncontrollable future inflation expectations, which could fuel inflationary dynamics as people expect greater price increases and therefore demand for higher wages, which are on the rise. Huh.

New York Federal Reserve Bank President John Williams recently said that consumer expectations for inflation five years down the road “barely budge” and they remain “anchored well” around the Fed’s 2 percent objective. Huh. He added, however, that there is upside risk and “a great deal of uncertainty” around the inflation outlook.

The New York Fed’s most recent Consumer Inflation Expectations Survey showed that both short-term (one year ahead) and medium-term (three years ahead) inflation expectations hit record highs. In August, consumer expectations for what would be inflation over a one-year horizon rose to 5.2 percent, while inflation expectations for three years fell to 4.0 percent.

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Tom Ozimek has an extensive background in journalism, deposit insurance, marketing and communications, and adult education. The best writing advice he’s heard from Roy Peter Clark: ‘Hit your goal’ and ‘Leave the best for last.’

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This News Originally From – The Epoch Times

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