The Federal Reserve It needs to speed up its schedule to tighten monetary policy because rising prices show no signs of easing anytime soon, said Jeremy Siegel, a finance professor at the Wharton School of the University of Pennsylvania.
Siegel, who last year predicted an increase in consumer prices when few did, expects cumulative inflation of between 20% and 25% over the next two to three years in EE.UU. before it disappears.
“It is not over,” he said Thursday in an interview with Bloomberg Television. “It could get worse unless the Fed controls money supply growth.”
In June of last year, Siegel was in the minority when he predicted that the stimulus-driven boom in consumer spending would boost economic growth in 2021, and that “for the first time in more than two decades, we would see inflation.”
So far he has proven to be right. In October, consumer prices rose 6.2% from a year earlier, the largest annual increase since 1990, according to government figures released last week. Against a backdrop of strong demand, companies have been charging more for goods and services to help offset rising costs caused by supply chain bottlenecks and labor shortages.
The general increase in prices suggests that the inflation will last longer than previously thought, putting pressure on Federal Reserve officials to raise interest rates earlier than expected and potentially accelerate the pace of the gradual reduction in bond purchases announced this month. .
“I don’t think the markets are prepared for how fast I think the Fed has to go,” he said. “So much money was created during the pandemic to cushion the economic effects, but that was not withdrawn and that is what is flowing.”
The only solution for the Fed is to raise rates, Siegel said.
High inflation also threatens to derail the president’s agenda Joe Biden, while the White House and Democrats seek to pass a $ 1.75 trillion spending plan and defend the tiny majorities in Congress in next year’s midterm elections.
Even as consumer confidence has waned amid rising inflation fears, spending so far has held steady as strong savings accumulated during the pandemic and strong wage growth boost consumption.
Siegel attributes most of the price increase to a surge in demand triggered by a post-pandemic stimulus.
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