Not too hot, not too cold: This is how Wharton professor Jeremy Siegel sees the economy after cooler-than-expected June inflation data.
“It’s a moderate economy – strong economic growth and subdued inflation,” the seasoned market observer said he told CNBC on Friday, arguing that the Federal Reserve’s sharp interest rate increases since March 2022 appeared to be working their magic to tame inflation.
Siegel’s positive outlook comes after the Bureau of Labor Statistics reported Wednesday that year-over-year inflation fell to just 3% last month, a far cry from the 9.1% four-decade high seen this time last year. And while many economists have warned throughout 2023 that higher interest rates could eventually lead to a recession, Siegel isn’t buying it. “The Fed may commit a landing here, against all expectations,” he said on Friday, referring to a “soft landing” where inflation is tamed without the need for a job-killing recession.
To his point, US first-quarter GDP growth was revised down to 2% late last month, and Atlanta Fed growth GDP is now tracked, which is a running estimate of economic growth, and forecasts GDP growth of 2.3% for the second quarter. This is far from the stagnation zone.
Siegel also noted recently that consumer spending has been incredibly resilient due to what he calls YOLO, or “you only live once” shoppers. The professor explained in his book that these summer spenders “are not affected by the impact of higher borrowing costs” amid a persistently low unemployment rate. Wisdom hanging from the tree this week. He said this flexibility should help keep the economy growing, given that consumer spending accounts for 70% of US GDP.
Despite the recent positive news on the inflation and growth fronts, Siegel said Fed officials have already hiked interest rates again this month. After that, he expects that they will be “data-driven” when deciding whether to raise interest rates again at their next meeting in September, which means that the upcoming CPI data and Q2 GDP numbers will be crucial.
But the Wharton professor said that if he were chairman of the Fed, he would no longer raise interest rates, arguing that inflation has been defeated and that the tactic is just an “attack” on wages stuck in “catch-up mode” after years of low real wage growth during the pandemic. .
I don’t see any resurgence of inflationary trends. “I see stability,” he said. Oil has leveled off, commodity indices have leveled off somewhat, and the housing market has leveled off. I don’t see any significant inflationary increase.”
Siegel is not alone in his increasingly positive view of the American economy. A number of investment banks and CEOs have had to revise their earlier recession calls as economic data has continued to surprise to the upside this year. and BlackRock CEO Larry Fink Tell CNBC Friday that the United States is still in an “incredible position” compared to the rest of the world. As inflation fades and fiscal stimulus from the Infrastructure Investments and Jobs Act, the CHIPS and Science Act, and the Inflation Reduction Act enters the economy, Fink said he believes growth will “accelerate” from here.