Federal Reserve’s Jerome Powell owes the American people an ‘apology’, says Jeremy Siegel

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According to eminent Professor Jeremy Siegel of the Wharton Business School, Federal Reserve Chairman Jerome Powell owes the American people an “apology” for his mismanagement of monetary policy over the past two years.

In an interview with CNBC on Monday, Siegel claimed the central bank was now behaving too aggressively to fight inflation and would negatively affect American workers during this tightening cycle.

Because the Fed is too focused on lagged inflation data and “talks way too loudly,” Siegel thinks the central bank should instead focus on preventing a recession.

“President Powell has talked a lot about JOLTS data, job posting data and labor turnover. How tight. Interestingly enough, I think back to September a year ago, it was exactly as tight as it is today. And he never said anything about inflation. What made him change his mind? It’s the same data,” Siegel said.

While Powell and his colleagues regularly postulate in a tight labor market that contributes to skyrocketing wages, Siegel rejects the hypothesis that higher wages add to inflationary pressures. Instead, according to Siegel, workers’ wages are playing a “catch-up” game against a soaring consumer price index (CPI).

“It seems to me that Powell is wrong to say that we are going to crush wage increases, we are going to crush the worker, when that is not the cause of inflation. The cause of inflation was excessive monetary accommodation over the past two years,” Siegel added.

Ultimately, Siegel recommends that Powell make an “apology to the public for such poor monetary policy” that he and the institution have pursued over the past few years.

Policy errors

Siegel also appeared on CNBC Sept. 23 to discuss monetary policy, saying the past two years have been filled with the worst policy mistakes in the organization’s 110-year history.

Siegel claimed the Fed was getting ultra-hawkish on monetary policy as Powell should have started his tightening campaign as commodities soared at a rapid pace. Now that commodity and asset prices are falling, the Fed is raising interest rates, and “it makes absolutely no sense to me.”

Federal Reserve Board, Washington, March 27, 2019. (Brendan McDermid/Rueters)

“I think the Fed is just too tight. They are making the exact same mistake on the other side as they were a year ago,” he added. “It’s like a pendulum. They were way too easy, like I told you and many others, until 2020, 2021. And now, “Oh my God, we’re gonna be real badass until we smash it.” ‘economy.” “Bad monetary policy” would be an understatement.”

Siegel’s comments went viral, catching the attention of Tesla Motors CEO Elon Musk, who tweeted over the weekend that “Siegel is obviously right.”

Fears of overtightening

Now that the Fed is all but guaranteed to continue to pull the trigger on rate hikes and leave the fed funds rate higher for longer, there is widespread dismay on Wall Street over the bank’s excessive tightening. central.

Jeff Gundlach, CEO of DoubleLine and self-styled Bond King, recently said on a podcast that the Federal Reserve may be excessively tightening monetary policy, adding that the central bank is “getting aggressive to the point of oversteering the economy into the dumpster.”

David Rosenberg, the chief economist at Rosenberg Research, told CNBC last week that the Fed should consider hitting the pause button on rate hikes and assess the impact of the current cycle on the economy. at large.

“We keep talking about inflation, but the economy is flat on its back right now,” he said. “They are raising rates and shrinking the size of the balance sheet quite dramatically in an inverted yield curve. And that will sow the seeds of a recession, if we’re not there already.

Despite widespread concerns about a broader economic slowdown, Fed Bank of Atlanta President Raphael Bostic told CBS’ “Face the Nation” that he thinks there’s a good chance of bringing the rate down. inflation target at 2% without killing the economy.

“I think we’re going to do everything we can at the Federal Reserve to avoid deep, deep pain,” he said.

Boston Fed President Susan Collins echoed the same sentiment, telling a local Chamber of Commerce in Boston on Monday that a sharp downturn is not inevitable.

“I anticipate that achieving price stability will require slower job growth and somewhat higher unemployment,” Collins noted, reiterating her colleagues’ position that she will wait until there are “clear and convincing signs” of falling inflation to advocate curbing. on rate hikes.

According to the CME FedWatch Tool, most of the market is eyeing a 75 basis point increase at November’s Federal Open Market Committee (FOMC) policy meeting.

Andre Moran

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Andrew Moran covers business, economics and finance. He was a writer and journalist for over a decade in Toronto, with bylines on Liberty Nation, Digital Journal and Career Addict. He is also the author of “The War on Cash”.

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