Prominent economist Jeremy Siegel has slammed the Federal Reserve for “bringing the brakes too hard” by raising interest rates too high in a bid to fight inflation.
“If they stay as tight as they say they are, continuing to raise rates even early next year, the risks of a recession are extremely high,” he told ‘Street Signs Asia’ on Friday. from CNBC.
Siegel, a professor at the Wharton School of Business at the University of Pennsylvania, said he was among the first to warn the Fed in 2020 and 2021 of the potential for inflation to spike, and that the Fed should have started to tighten monetary policy much sooner. But now he says he fears it may be too late to prevent the US economy from heading into a recession.
“The pendulum swung too far the other way,” Siegel said.
The Fed has raised interest rates five times this year – the last three hikes were 75 basis points each – to a federal benchmark rate of 3% to 3.25%, the highest since the start of 2008 .
Inflation slowed year-on-year from 9.1% in June to 8.5% in July and then to 8.3% in August. But that’s not enough for the Fed, which has signaled it is likely to continue raising rates, with another 75 basis point hike expected in November. This comes despite growing concern among investors and economists that rapid and aggressive rate hikes are sending the economy into recession.
The September jobs report, released on Friday, showed employers slowed hiring, which could indicate that the Fed has had some success in slowing the economy. But at the same time, the jobless rate has fallen, which could give the Fed more ammunition to raise rates again.
In a note to clients on Thursday, Bank of America analysts predicted the Fed would do the same, saying it “will continue to rise until the labor market cracks.” They added: “For us, this means the Fed is confident that payroll growth has slowed and unemployment is on an upward trajectory.”
Siegel, however, argued that inflation should not be the primary concern at this point.
“Most of the inflation is behind us, and the biggest threat is recession, not inflation, today,” he said, noting that official data does not immediately show what is happening. goes into the real world.
Current interest rates, Siegel said, are enough to bring inflation down to 2%, which is the Fed’s target.
For his part, Fed Chairman Jerome Powell has made it clear that despite the “suffering” of households and businesses, he is committed to reducing inflation – and for him that means raising inflation. interest rate.
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