To hear Jeremy Siegel tell it, the Federal Reserve has already won its fight over inflation and should start taking its foot off the monetary brakes.
“I think the Fed should be near the end of its tightening cycle,” the ubiquitous market prognosticator and Wharton School finance professor told CNBC last week. According to Siegel, current headline inflation may still be high, “but forward-looking inflation has really been stopped. And I think the Fed should really slow down the rate of hiking, and if we get a snapback in productivity that’ll put further downward pressure” on inflation.
Is he right, or is it just wishful thinking so stocks can resume their decade-long winning streak?
Right now the signals look mixed, based on the two most important and widely-followed economic reports issued last week.
According to the Commerce Department, second quarter GDP fell 0.9% at an annual rate, on top of the prior quarter’s 1.6% decline.
Until this year, the mainstream media would have immediately pounced on that as clear evidence that we are officially in a recession, following the traditional definition of a downturn as two back-to-back negative quarters. Now, however, with a feckless president poised to lead his party to an election Armageddon in November, we learn that the old standard simply doesn’t apply anymore, so we can’t use the dreaded “R” word.
Whether that’s pure bias or pure something else that also begins with a B, July’s robust jobs report, which showed the economy added a much higher than expected 528,000 jobs, does create some doubt whether we are in a recession or not, and if so, what the Fed plans to do about it.
Instead of viewing the jobs report as good news being bad news – i.e., the Fed will need to continue tightening to stifle economic growth—and sell stocks, the market instead went up on Friday and continued to rally on Monday morning. Is the recession – if there ever was one – now officially over, the inflation monster slain and no further need for the Fed to continue to raise interest rates? Continue reading "Has the Fed Already Whipped Inflation?"