Jeremy Siegel: Don’t Take Powell’s Words as ‘Gospel’

Wharton School economist Jeremy Siegel questions the basis for Federal Reserve Chairman Jerome Powell’s recent hawkish comments, criticizing the chairman’s forecasting credibility and voicing concern that the central bank will go too far in raising interest rates to fight inflation.

The stock market has tumbled sharply over three trading sessions since Powell said Friday the Fed must “keep at” raising its benchmark interest rate and that policymakers need more evidence inflation is headed downward.

Appearing Monday on CNBC, Siegel called Powell’s remarks at the Fed’s Jackson Hole, Wyoming, economic conference unsatisfactory.

“Let’s not take Chairman Powell’s words as gospel, because here’s a man who as we all know a year ago stood at the same podium and said inflation was not a problem. Here’s a man who in congressional testimony told us, we don’t think money matters, our studies have shown money doesn’t matter, then they proceeded to explode the money supply at the greatest rate in our history,” Siegel said.

“Here’s a man that a year ago said, ‘We’re not even thinking about thinking about raising interest rates,’” Siegel said on “Squawk Box.” “And most troubling was in response to the last four FOMC meetings, in the Q&A period, he was asked, ‘Is policy going to cause a recession?’ He said, ‘No, we’re just going to reduce the number of job openings to bring them into balance with the demand.’” 

In the last month, 90% of the released price indexes were lower than market expectations, Siegel noted.

“So he suddenly acts as if things have gotten a lot worse,” Siegel said. “Well, what is he looking at? Did he tell us? What is his guideline now for bringing inflation down? Is he looking at sensitive commodity prices? Is he looking at on-the-ground prices? I just found it a very unsatisfactory description, almost like, ‘Yeah, we messed up, we’re way too loose, and now we’re going to be Mr. Tough Guy.’ OK, but where is the hard evidence?” 

On the ground, the finance professor added, “prices have slowed dramatically, and I would like him to acknowledge that we’re looking at some forward-looking indicators rather than not even specifying which indicators he’s looking at.” 

There have been only one or two other occasions in the last 75 years when policymakers have restricted liquidity this greatly, according to Siegel.

“My feeling is he has 100 basis points to go,” and that the Fed will ease next year, he said. 

“To tell us we’re going to have to have more pain to me was a far too negative message and honestly his forecasting ability has lost my credibility,” Siegel said. “I don’t know about the Street. Is he going to make a mistake by tightening too much?” 

Powell did mention that monetary policy works with a lag, Siegel noted. “If he waits for the official [inflation] statistics to really start coming down to 2% he will overtighten and he’ll make the same mistake on the downside as he made on being too slow on restricting liquidity in 2021 and early 2022,” Siegel said. “That is basically what my concerns are.”