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Portfolio > Economy & Markets

Jeremy Siegel: Fed Trying to 'Crush' Wages to Fight Inflation

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What You Need to Know

  • Siegel stands by his view that inflation is basically over.
  • The economist doesn't consider Friday's jobs data to be too hot.
  • Price data in line with Fed greatly slowing down, he suggested.

The unexpectedly strong U.S. jobs report that temporarily depressed stocks Friday wasn’t as hot as many interpreted, according to Wharton School economist Jeremy Siegel, who said gains in wages really represent workers trying to catch up to high inflation.

Siegel, appearing on CNBC’s “Closing Bell: Overtime” after the market close Friday, stood by his view that inflation is over, explaining that major price indexes are coming down and warrant a slowdown in Federal Reserve interest rate hikes.

He chided the Fed for trying to stymie wages in the central bank’s effort to wrangle inflation back down to its 2% target.

“I did not regard today’s jobs report as hot hot hot,” Siegel said Friday, noting that hours worked declined and household survey data — versus establishment data — showed lower employment.

Stocks initially sank Friday after government data showed stronger-than-expected gains in payrolls and hourly earnings. Shares recovered later in the day, with the Dow Jones Industrial Average closing slightly higher and the S&P 500 and Nasdaq Composite indexes ending only slightly lower, and all three measures ending the week higher.

The jobs report was neither weak nor strong, according to Siegel.

“We had 5% year-over-year wage growth, we have 8% inflation. Workers are trying to catch up and they’re not, they’re still falling well behind,” the economist said.

It just disturbs me to think that the Fed’s policy is to crush wages so (inflation goes) back down to 2%,” Siegel added. They “are basically saying to the workers, ‘You’re not going to catch up to inflation and we’re going to prevent you from catching up to the inflation.’ That’s an insane policy.”

“This idea that the worker trying to catch up because he’s lost so much purchasing power is something that the Fed has to crush, to me, is extraordinarily bad policy. And I don’t think it’s inflationary because it’s inflationary when wages jump ahead of prices, not when they lag behind prices,” Siegel said.

As for stocks largely reversing their drop Friday, “people are saying despite the wage catch-up, the price action is going to be amenable to the Fed greatly slowing down,” he said.

Fed Chairman Jerome Powell indicated earlier last week the central bank could start slowing its rate hikes as early as this month.

Siegel suggested that incoming economic data shows the Fed won’t need to make an interest rate hike in February, “but we’ll have to see what happens. They’re not indicating that now. But if that does happen, wow that’s good for stocks. Good for bonds and stocks,” Siegel added.

“This wage increase is catch-up and I don’t think this wage increase by itself is inflationary. Everything else that I see on the price front … it’s not only a slowdown in inflation it’s actually negative inflation on many of these important categories,” he said. “If the Fed wants an excuse to keep on raising rates they’re going to point to what I consider a faulty index and not an on-the-ground index of what’s happening.”

“I am not changing my view that inflation is basically over,” he said. “This is catch-up wages and the Fed should not be setting policy to go against that.”

(Image: Chris Nicholls/ALM)


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