Wharton's Jeremy Siegel sees Fed 'dot plot' shift toward tightening, expects stock decline

Published Wed, Jun 16 202112:38 PM EDTUpdated Wed, Jun 16 20211:31 PM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

Wharton School's Jeremy Siegel told CNBC on Wednesday he expects a shift in policy expectations from members of the Federal Open Market Committee when it releases its post-meeting statement later in the afternoon, and he predicted the stock market could drop as a result. In an interview on "Halftime Report," Siegel said he believes central bankers will move up their projections for when the Federal Reserve will adjust interest rates from their near-zero levels. "In March, only four of the FOMC members expected a Fed funds increase next year. I believe that that's going to increase to a majority," the finance professor told CNBC. Referring to the so-called dot-plot projections, Siegel said: "I think you're going to see a big shift in the dots to a more aggressive tightening stance and, honestly, I'm not sure the market is ready for that." In the March projections , most FOMC members expected to keep rates near zero through 2023. March meeting dot plot If the dot shift were to happen, Siegel said, the stock market would decline and face a challenging time in the near term as traders digested the new stance. But as a longtime market bull, he said, he doesn't believe a scenario like the one he predicted would end the bull market. "I think we're going to see a short-term decline," Siegel said. "I'm not going to call it a taper tantrum, I'm going to call it a taper tremor," he added. He said the reason is if the FOMC moves up its expectations for a rate hike, the timeline for when the Fed starts to ease up on its asset-purchase program will likely be pulled forward, too. "You can't have an increase in rates sometime next year without first having a taper," Siegel said. According to CNBC's latest Fed survey , economists, fund managers and Wall Street strategists don't see tapering before January or a rate hike until November 2022. Siegel, author of the well-known investing book "Stocks for the Long Run," has maintained a favorable outlook on equities so far this year. He offered a caveat to that outlook, however, saying he expected to become more cautious in the later stages of the Fed's tightening cycle . "In a way, it's not bad to have a correction. It clears out a lot of excesses in the market. I do not think basically the bull market is over," Siegel said Wednesday. Siegel's comments came ahead of Fed Chairman Jerome Powell 's highly anticipated news conference , which is set to begin around 2:30 p.m. ET. At 2 p.m., the central bank will release its policy statement, along with the dot-plot projections following its two-day June policy meeting. Wall Street is looking for insight into how the Fed is processing a series of data releases that show inflation is picking up across the U.S. economy as it recovers from the Covid pandemic. Powell and other central bank officials have frequently said they believe the rising prices will be transitory and, as a result, they think that maintaining highly accommodative monetary policy remains appropriate to help support a full recovery in the labor market. Others disagree with that inflation and policy outlook. Paul Tudor Jones, the hedge-fund legend, told CNBC earlier in the week he believes the Fed's credibility is at stake .

Jeremy Siegel

David Orrell | CNBC

In an interview on "Halftime Report," Siegel said he believes central bankers will move up their projections for when the Federal Reserve will adjust interest rates from their near-zero levels.

"In March, only four of the FOMC members expected a Fed funds increase next year. I believe that that's going to increase to a majority," the finance professor told CNBC.