Steve Marcus/Reuters
- Fed officials are "monomaniacal" and "misguided" in cooling off the economy, Jeremy Siegel said.
- He told CNBC there was no need for the Fed to be so concerned about rising wages and inflation.
- Siegel has been critical of Fed policy in the past, and previously said it risked a US recession.
The Fed is overly focused on its efforts to soften the labor market, and central bankers are making a major mistake about inflation, according to Wharton professor Jeremy Siegel.
"I think the Fed policy is very misguided," he told CNBC on Thursday, referring to the central bank's aggressive rate hikes over the last year to rein in inflation.
Already, Fed officials have hiked interest rates by 450 basis-points, with markets now seeing a 50-basis-point hike later this month. But while central bankers are concerned over rising wages, which could fuel future inflation, they are necessary to fix structural supply gaps in the labor market, Siegel said.
And since the pandemic began three years ago, wages have actually risen less than inflation, which suggests the Fed should actually let wages rise to let workers keep up with the cost of living.
"I think their focus on just how tight is the labor market – suddenly a monomaniacal type of a focus – is the wrong way to go about it," he said.
He added that central bankers were also making a mistake about inflation. Consumer prices were up 6.5% annually in January, well-above the Fed's 2% inflation target.
But such data often lags behind what Siegel calls "on-the-ground" inflation due to the way major components, like housing prices, are recorded.
That echoes warnings from other market commentators, who have raised alarms that the Fed could raise interest rates too far to tackle inflation and push the economy into a downturn.
Morgan Stanley's chief equity strategist Mike Wilson said US stocks were now in the "death zone," as higher interest rates could spark a 26% stock market crash in the coming months.