- Wharton professor Jeremy Siegel is disturbed by the Fed’s apparent lack of diversity in thought.
- Siegel said no Fed members are opposed to Jerome Powell’s current hawkish stance, and that risks another policy error.
- “Their talking points are getting them into the feeling that the only thing we have to do now is kill inflation no matter what the costs.”
Wharton professor Jeremy Siegel is disturbed by the apparent lack of diversity in thought at the Federal Reserve, and it could lead to big market problems down the road.
Siegel has not been shy in voicing his criticisms of the Fed in recent weeks, arguing that their hawkish fight against inflation via aggressive interest rate hikes is too lopsided as they fail to consider leading indicators that suggest inflation has already peaked.
In an interview with CNBC on Wednesday, Siegel said his big worry now is that the Fed “is going to keep looking at housing inflation in the official indexes, while on the ground there’s actually no question that housing is going down, and that’s a very important factor.”
A sharp decline in the most recent JOLTS data, which measures job opening in the US economy, also suggests an economic slowdown is imminent, according to Siegel.
“I think the JOLTS data gave the stock market a jolt, and I hope it gives the Fed a jolt to say hey you know what, things are slowing a lot faster than perhaps they thought possible,” Siegel said. “All the signs are there for a slowdown. The Fed must recognize that and temper their hawkish stance.”
Recent comments from Fed president Mary Daly suggest those indicators are not yet impacting the Fed’s goal of taming inflation. Daly said the number one issue she is still hearing from businesses is the impact of inflation, and Fed Chair Jerome Powell continues to reiterate that he’s willing to spark a rise in unemployment if it means inflation will normalize.
But Siegel’s big criticism against the Fed lands squarely on their apparent groupthink, which can be seen in the unanimous decision by Fed members to raise interest rates by 75 basis points at its most recent FOMC meeting, as well as its dot plot projections for the Fed funds rate in 2022 and 2023.
“Honestly it disturbs me that everyone is on board with the same speaking points. Of the 18 FOMC members, you think there’d be more diversity. There’s been no dissents. This has been one of the most tumultuous economic trends we’ve had over the last 12 months and there’s been no economic dissents on what policy should be,” Siegel said.
That lack of diversity in thought means the Fed is prone to making more mistakes that can impact the economy in a negative way, according to Siegel.
“I’ve accused the Fed of groupthink before. I think that’s gotten them into the problem of thinking that inflation was temporary back in 2021, and I think their talking points are getting them into the feeling that the only thing we have to do now is kill inflation no matter what the cost. It disturbs me that there’s not more dissenting voices at the Fed. That’s what the Fed was designed [for],” Siegel said.