Fed critic Jeremy Siegel says the U.S. central bank almost deserves failing grade for how it has handled unwinding the extraordinary monetary stimulus provided during the COVID-19 pandemic.
“They get a D, barely,” the widely-followed Wharton professor said on Yahoo Finance Live (video above). “They are responsible for the inflation by being way too accommodative and way too late in their beginning of the tightening, and then I believe that they are going overboard in the other direction or at least indicating by their dot plot for 2023 that they are going to become tighter for longer, which I think is going to be a big mistake on the other side.”
Some investors likely agree with Siegel.
The Dow Jones Industrial Average (^DJI), S&P 500 (^GSPC), and Nasdaq Composite (^IXIC) are down 8.8%, 9.3%, and 10.5% over the past month, respectively, as investors brace for lower returns from companies amid higher rates from the Federal Reserve.
The Fed’s actions have arguably also uprooted global currency markets, sending the dollar to 20-year highs and triggering more angst around corporate profits from multinationals. And corporate profit warnings from large, well-known companies are piling up as the Fed’s rate hikes apply the brakes to the economy.
Earlier this month, FedEx (FDX) shocked the market by slashing its full year guidance. Wednesday brought a material full year profit warning from North Face owner V.F. Corp. and reports of Apple (AAPL) cutting iPhone production on growth fears. Nike warned late Thursday of bulging inventory levels, a more cautious consumer and the need for greater markdowns in the months ahead.
Siegel thinks more pain is ahead for the economy and markets as the Fed continues the fight against inflation, and he isn’t alone.
“I think it [the bear market] will continue into the first quarter of next year because the Fed is going to keep hiking [rates],” Pimco portfolio manager Erin Browne said on Yahoo Finance Live. “And so it’s hard to have with any certainty right now what next year will bring.”