- Jeremy Siegel is wary of stocks, expecting a recession, and predicts the Fed won’t hike again.
- The retired Wharton professor doubts whether the stock market will continue to rise or hit a new low.
- Siegel sees a mild recession and the Fed ending its war on inflation to reduce job losses.
Jeremy Siegel predicts that the stock-market rally will run out of steam, the US economy will sink into a mild recession, and the Federal Reserve will not raise interest rates any further.
The S&P 500 is up more than 20% from its most recent low, marking the start of a bull market. However, Siegel cautioned that during both the dot-com and housing crashes, stocks jumped more than 20% and then promptly wiped out all those gains.
“The recent bull market moves are no guarantee that we’re out of the woods out of a recession,” the retired Wharton finance professor said in his weekly commentary for WisdomTree, published Monday.
Siegel continued, “I remain cautious and I don’t think we have the start of a major move here.”
The veteran economist and author of “Stocks for the Long Run” also reflected on the future direction of Federal Reserve policy. The US central bank has raised interest rates from around zero to 5% since last spring in a bid to reduce historic inflation, given falling asset prices and recession fears.
While the Fed is widely expected to raise rates next month, Siegel suggested it may refrain from further tightening its monetary policy.
“We are entering the political season and there is already pressure not to create a deep recession,” he said, referring to next year’s US presidential election. “I expect a shallow recession for which the market is arguably already positioned.”
Siegel underscored the importance of the unemployment data in determining the Fed’s next move. He said signs of a weak labor market could prompt the central bank to end its inflation battle to potentially save millions of job losses.
The market guru also suggested that the Fed may raise its inflation target from 2% to 3% once the current threat subsides. Siegel said allowing higher inflation would give it more room to cut rates during an economic downturn, or if the US population and productivity begin to decline.
Source: markets.businessinsider.com
