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- The unprecedented fiscal and monetary stimulus will drive the inflation rates to 20% in the coming 2-3 years.
- The Fed will eventually be forced to stop rising costs from hurting the average American, and that won’t be easy.
- The increasing money supply-driven returns gap between stocks and fixed income investments will push investors towards riskier outlets in the equity markets.
Entitled “THE professor at Wharton,” Jeremy Siegel recently appeared in an interview with CNBC, where he foreshadowed a 20% inflation spike. He reasoned, the “unprecedented” fiscal and monetary stimulus, along with the U.S. money supply explosion, could easily drive the inflation rates to “20% in the next two or three years.”
Wharton Professor Jeremy Siegel
The ‘Russell E. Palmer Professor of Finance’ at the Wharton School of the University of Pennsylvania in Philadelphia, Pennsylvania, Jeremy J. Siegel is the acclaimed recipient of several teaching awards, including the Bloomberg Businessweek’s Best Business School Professor accolade in 1994. He is also a prominent bestselling author, often recognized for his writings which won him numerous best article awards. A Wharton professor since 1976, Siegel comments on the economy and financial markets and has made outstanding contributions to both finance and teaching sections.
Fed’s Inability To Curb Inflation
Expressing his disappointment with Fed Chair Jerome Powell’s inaction to curb inflation, Siegel called him “the most dovish chairman” he’s ever seen and believes Powell’s easy monetary policy stance could “be a problem down the road.”
According to Siegel, assets like bonds or cash “are the worst” in the present scenario. Instead, the stocks are what will “compensate for inflation” and “drive money into the market despite fears that the Fed will tighten in the future.”
Inflation Was Inevitable
Siegel notes that the total U.S. money supply has shot up by 30% since the beginning of 2021 alone and “that money is not going to disappear,” instead, it’ll “find its way into spending and higher prices.” With the unprecedented monetary expansion and fiscal support flowing in the financial as well as stock markets, it was bound to “explode into inflation.”
From corn to copper, commodity costs are rising ridiculously. And the raw goods price hike has in turn pumped up the home prices by $36,000 in the last 12 months, revealed data from the National Association of Home Builders. Even the consumer goods corporations like Proctor & Gamble are compelled to raise prices of items like diapers and razors, per The Wall Street Journal.
In his Friday interview, the Wharton professor admitted to being “an inflation worrier” for the past year, sharing he was worried about the inflation even before the commodity price hike hit the consumers. He added, at a certain point, “the Fed is finally going to be forced” to stop rising costs from hurting the average American. And that’ll be far from easy.
Fed Must Revise Its Inflation Approach
Siegel concluded that as long as the Fed and the Biden administration keep pumping money into financial markets, the stock market will continue to thrive, feeding the gap between returns from stocks and fixed-income investments. The gap, in turn, is bound to push investors towards riskier outlets in the equity markets. And once the inflation hits the mark Siegel expects, investors will be stipulated to move to dividend stocks in search of returns, as the performance of investment alternatives like bonds and treasuries will lag sorely.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.
