Inflation could spike to 20% in the next few years as the US money supply explodes, says Wharton professor Jeremy Siegel

Jeremy Siegel Wharton CNBC
  • Jeremy Siegel said inflation could spike to 20% in the next few years in an interview with CNBC on Friday.
  • The Wharton Professor called Fed chair Jerome Powell the “most dovish chairman” he’s ever seen.
  • “I’m predicting here that over the next two, three years we could easily have 20% inflation,” Siegel said.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Wharton professor Jeremy Siegel said inflation could spike to 20% in the next two or three years due to “unprecedented” fiscal and monetary stimulus and an explosion of the US money supply.

“I’m predicting here that over the next two, three years, we could easily have 20% inflation with this increase in the money supply,” Siegel said in a recent interview with CNBC.

Siegel went on to criticize Fed chair Jerome Powell for not acting to quell inflation in the near term.

The Wharton professor called Powell the “most dovish chairman” that he’s ever seen and said that the Fed chair’s stance could “be a problem down the road.”

In the meantime, Siegel said he is bullish on stocks because fiscal and monetary support is going to keep flowing in.

Siegel noted that the total money supply in the US has gone up almost 30% since the start of the year alone.

“That money is not going to disappear. That money is going to find its way into spending and higher prices,” Siegel said.

“The unprecedented monetary expansion, the unprecedented fiscal support, you know, I think excessive, was first going to flow into the financial markets, into the stock market, and then once we’re reopening, and we’re right at that cusp, it was going to explode into inflation,” he added.

To Siegel’s point, from corn to copper, commodity prices are rising across the board, despite a brief reprieve in some key sectors like lumber this week.

The rising cost of raw goods has pushed up home prices by some $36,000 since April of last year, according to data from the National Association of Home Builders.

Consumer goods corporations like Proctor & Gamble have also said they will be forced to raise prices on items like diapers and razors due to rising raw goods costs, per WSJ.

Even before the effects of rising commodity prices hit consumers, Siegel was worrying about inflation, he told CNBC in his Friday interview.

Read more: Bank of America says Wall Street stock pickers remain vulnerable to an inflation shock – and recommends 2 trades for protection as prices rise

The Wharton professor said he’s been “an inflation worrier” for the last year and argued the fed will eventually be forced to step in and stop rising costs from hurting the average American.

“Then the fed is finally going to be forced to say, yeah, I’ve got to stop this, and then there’s going to be a bump in the road,” Siegel added.

Despite his inflation concerns, the Wharton professor concluded that as long as the Fed and the Biden administration are pumping money into financial markets, the stock market will continue its historic rise.

The gap between returns for stocks and fixed income investments continues to push investors towards riskier outlets in the equity markets, according to Siegel.

The Wharton professor also said that investors will end up moving to dividend stocks in search of returns if inflation does hit as he expects, while investment alternatives like bonds and treasuries will continue to lag in terms of performance.

“The history is that stocks more than compensate for inflation and there’s a lot of dividend-paying stocks offering 2%, 3%, 4%, 5%, so why would you go fixed income? The gap is huge. And that’s what I think is going to continue to drive the money into the market despite the fears, that will be realized, that the fed will tighten in the future,” Siegel concluded.

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The stock market could soar 40% as the bull market enters its 3rd inning, Wharton professor Jeremy Siegel says

Jeremy Siegel Wharton CNBC
  • The bull market in stocks is just getting started, according to Wharton professor Jeremy Siegel.
  • Siegel said the stock market could surge 40% from here before it stages a 20% correction.
  • “I have never seen a Fed Chairman so dovish,” Siegel said of Jerome Powell in an interview with CNBC.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

The bull market in stocks is just getting started as it enters its third inning, Wharton professor Jeremy Siegel said in an interview with CNBC on Thursday.

Siegel said the stock market could surge 30%-40% from current levels before it stages a 20% correction. The bullish backdrop for Siegel is partly based on Fed Chairman Jerome Powell, who has been steadfast in recent weeks that the Fed is not planning to raise interest rates anytime soon despite growing evidence that a strong economic rebound from the COVID-19 pandemic is materializing.

A 30%-40% jump in the S&P 500 from current levels would see the index trade in a range of 5,322 and 5,731.

Siegel expects a strong inflationary year of 4% to 5% as increased demand and supply chain disruptions lead to a boost in prices. Powell views the expected jump in inflation as temporary.

“I have never seen a Fed Chairman so dovish,” Siegel said of Powell. Siegel expects that a rise in inflation and interest rates amid a booming economy will ultimately force the Fed’s hand, leading them to raise the fed funds sooner than expected.

But even in that environment, Siegel reminded viewers that in an economic environment dominated by a jump in growth, inflation, and interest rates, investors want to own stocks, which represent a claim on real assets like land, trademarks, and businesses.

“Enjoy this ride [because] it’s going to keep on going,” Siegel said of rising equities, before adding that he sees stock market gains extending through the end of 2021 at least. “I would not be cautious [on stocks] right now,” Siegel said.

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