Jeremy Siegel outlines 2023 predictions for the stock market, economy

• Jeremy Siegel is one of the few market experts who expects stock market gains in 2023.
• Roasting the Fed, the Wharton professor outlined his predictions for 2023 in an interview with CNBC last week.
• Here are the top nine quotes from Siegel’s interview about inflation, the economy and the stock market.

Wharton professor Jeremy Siegel has been outspoken in his view that the Federal Reserve’s excessive rate hikes could do lasting damage to the economy as more and more investors worry about a recession.

But unlike other stock market outlooks, his 2023 forecast is actually bullish and calls for at least a 20% increase. That’s because he sees collapse inflation and a resilient economy that too many investors underestimate.

In an extension interview with CNBC last weekSiegel outlined his views on what will happen to the stock market and economy next year, and why Fed Chairman Jerome Powell could be making a big mistake.

Here are the nine best quotes.

1. On why wages are not driving general inflation:

“We had 5% year-over-year wage growth. We have 8% inflation. Workers are trying to catch up and they’re not succeeding. They’re still way behind. To crush wages so they fall back to 2% , basically telling the employee, ‘You’re not going to catch up with inflation, and we’re going to prevent you from catching up with inflation.’ That’s an insane policy,” Siegel said.

“So this idea that the employee trying to catch up because he’s lost so much purchasing power is something the Fed needs to crush is, to me, extremely bad policy by the Fed, and I don’t think it’s inflationary, because it’s inflationary when wages rise.” ahead of the prices, not when they lag behind the prices.”

2. On the Fed’s interest rate decision on Wednesday:

“My feeling is that it’s 50 [basis points]. The data comes in and they don’t even have one [rate hikes] in February. When that happens, wow, that’s good for stocks, good for bonds and stocks… You know my gut feeling is you don’t need more than these 50 basis points. These 50 basis points may be too much in themselves.”

3. Why Siegel is so critical of the Fed:

“Yes, I’m very critical of the Fed. To be blunt, here’s a Fed that caused inflation by making liquidity greater than at any time in history, and basically talks as if to the employee ‘we’re not going to leave catch up with the inflation I caused.” That, in my opinion, is a slap in the face to the American worker. I just don’t think that’s right.”

4. Where Inflation Comes From:

“I still believe [inflation is over]… everything else I see on the price front [is down]… I don’t change my view that inflation is essentially over. These are catch-up wages, and the Fed shouldn’t have policies to go against that… There is huge evidence that inflation is declining.”

5. On Where Yields Go From Here:

“I think [bond yields] will continue to fall, because I think we’re going to have slower growth. This was not hot [November jobs] report. And we get declining inflation. Those are two good things for bonds, and they’re good for stocks too.”

6. About where the federal funds rate goes from here:

“I’m really sticking my neck out here, but I wouldn’t be surprised if we have a 2-handle on the Fed Funds rate at the end of next year. That’s way outside consensus, I know…But I just say that once we get this data, we’ll get to work very quickly.” The effective Fed Funds rate is currently 3.8%

7. When the Fed starts cutting rates:

“The talk won’t be, it’s going to be a 25 basis point increase or whatever. It’s going to be when we’re going to cut the rate? That could come as early as the spring.”

8. On the probability of a recession in 2023:

“Revenue is important to say the least. If the Fed stays tight, we will enter a recession. The profit will not be $230 [per share for the S&P 500]they’ll be $200, or $190 for a few years or a year and a half,” Siegel said.

“GDP will be below 1% this year… That’s not strong. It’s not a recession, not yet. But if [the Fed] goes to 6%, you’re going to have it.”

9. On the potential for economic growth in 2023:

“We have 4.5 million new hires and almost no increase in GDP. I think next year we will have much lower wage growth, and much better GDP. Because that record drop in productivity that we had this year will turn around… Productivity goes up, that improves margins and that’s good for bottom line.”