The Federal Reserve risks causing an economic “depression” if it relies on core inflation readings to determine when it should stop hiking interest rates, Wharton professor Jeremy Siegel warned Thursday.

Siegel, who has previously accused the Fed of tanking the economy, pushed back during an appearance on CNBC when asked if the latest federal inflation data showed central bankers were justified in pursuing more hikes. Inflation hit 8.2% in September, higher than economists expected.  

“If the Fed waits for the core [inflation] to get down to 2% year-over-year, it’ll drive the economy into a depression,” Siegel said. “Totally wrong.”

Core inflation, which excludes volatile food and energy prices, ran at a hotter-than-expected 6.6% in September. The shelter index, which includes rent, was up 6.6% year-over-year and accounted for more than 40% of the overall increase in core inflation, according to the BLS.

Siegel argued that readings on housing and rents included in the Consumer Price Index – key factors driving core inflation in September – are actually lagging indicators that do not accurately represent current market conditions.

The professor argued it will take “months, if not years” for declines in housing and other sectors to be accurately reflected in the Consumer Price Index reports released by the Bureau of Labor Statistics.

“I’m not at all surprised by the number because the number is ridiculous,” Siegel said, referring to core inflation. “It has no meaning to what the actual rate of inflation is. And the housing, which is almost 50% of the core rate, is the most distorted of all.”

Fed Chair Jerome Powell
The Fed is widely expected to implement another sharp hike in November.

The Fed has a 2% target for inflation that it deems acceptable. Investors have feared for months that the Fed will overcorrect through sharp interest rate hikes that will result in a sustained economic downturn.

The latest inflation report was released one week after Siegel torched the Fed’s response to the situation in a fiery rant. The prominent commentator argued the Fed’s current policy path is “way too tight” and “makes absolutely no sense to me whatsoever.”

NYSE trader
Jeremy Siegel warned the Fed risks causing a depression through restrictive economic policy.

“It’s like a pendulum. They were way too easy, as I’ve told you and many others, through 2020, 2021,” Siegel said at the time. “And now, ‘Oh my God, we’re going to be real tough guys until we crush the economy.’ ‘Poor monetary policy’ would be an understatement.”

The market overwhelmingly expects Fed policymakers to hike the benchmark interest rate by three-quarters of a percentage point for the fourth straight meeting. The Fed is slated to meet on Nov. 1-2.


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