Not too scorching, not too chilly: That’s how Wharton professor Jeremy Siegel sees the financial system after June’s cooler-than-expected inflation information.
“It’s a Goldilocks financial system—sturdy financial development and falling inflation,” the veteran market watcher told CNBC Friday, arguing that the Federal Reserve’s aggressive rate of interest hikes since March 2022 seem like working their magic to tame inflation.
Siegel’s optimistic outlook comes after the Bureau of Labor Statistics reported Wednesday that year-over-year inflation sank to simply 3% final month, a far cry from the 9.1% four-decade excessive seen right now a yr in the past. And whereas many economists have warned all through 2023 that rising rates of interest may find yourself sparking a recession, Siegel doesn’t purchase it. “The Fed would possibly stick the touchdown right here, in opposition to all expectations,” he stated Friday, referring to a “tender touchdown” the place inflation is tamed with out the necessity for a job-killing recession.
To his level, first quarter U.S. GDP development was revised up to 2% late final month, and the Atlanta Federal Reserve’s GDPNow tracker, which serves as a working estimate for financial development, is predicting 2.3% GDP development for the second quarter. That’s removed from recession territory.
Siegel additionally just lately famous that client spending has been extremely resilient as a consequence of what he calls YOLO, or “you solely reside as soon as,” customers. These summer season spenders have been “impervious to the impression of upper borrowing prices” amid a constantly low unemployment fee, the professor defined in his WisdomTree commentary this week. This resilience ought to assist preserve the financial system rising, he argued, on condition that client spending represents 70% of U.S. GDP.
Regardless of the latest optimistic information on the inflation and development fronts, Siegel stated that Fed officers have seemingly already locked in yet one more rate of interest hike this month. After that, he expects they are going to be “data-dependent” when figuring out whether or not to hike charges once more at their subsequent assembly in September, that means the upcoming client value index information and second quarter GDP figures shall be essential.
However the Wharton professor stated that if he had been the Fed chair, he wouldn’t increase rates of interest anymore, arguing that inflation has been defeated and the tactic is merely an “assault” on wages that are caught in “catch-up mode” after years of falling actual wage development throughout the pandemic.
“I don’t see any reappearance of inflationary tendencies. I see stability,” he stated. “Oil has acquired its footing, commodity indexes have form of stabilized, the housing market has stabilized. I don’t see any huge inflationary uptick.”
Siegel isn’t alone in his more and more optimistic outlook for the U.S. financial system. Numerous funding banks and CEOs have been pressured to revise their earlier recession calls as financial information continues to shock to the upside this yr. And BlackRock CEO Larry Fink told CNBC Friday that the U.S. stays in “an unbelievable place” in comparison with the remainder of the world. With inflation fading and financial stimulus from the Infrastructure Funding and Jobs Act, the CHIPS and Science Act, and the Inflation Discount Act coming into the financial system, Fink stated he believes development is “going to speed up” from right here.