Wharton’s Siegel expects the Fed will soon get ‘serious’ on inflation and that’s bad for stocks

Published Wed, Nov 10 20211:07 PM ESTUpdated Wed, Nov 10 20211:46 PM EST

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

Wharton School finance professor Jeremy Siegel told CNBC on Wednesday he expects the Federal Reserve will soon adopt a tougher monetary policy stance to combat the inflationary pressures that continue to hit the U.S. economy. "Stocks love inflation until the Fed gets serious about it, and they have not been serious about it. We will see," Siegel said on CNBC's "Halftime Report." He added, "I don't think the bumps [for stocks] come until the Fed changes direction and says, 'You know what, we've got to be much more serious.' Maybe it'll be at the December meeting. Maybe it'll be a little bit later." Siegel's comments came after the Labor Department's closely watched consumer price index for October came in hotter than Wall Street expected , increasing 6.2% compared with a year ago. That's the largest jump since December 1990. Economists polled by Dow Jones had estimated a 5.9% increase. The consumer price index rose 0.9% on a monthly basis, also topping the 0.6% estimate from Dow Jones. "This was a troublesome report we got today," said Siegel, who has warned for months that inflation would larger and more persistent than the Fed and its chairman, Jerome Powell , have predicted. The Fed's policymaking arm has its final scheduled meeting of the year Dec. 14-15, which means as Siegel noted, there will be one more consumer price index report out — for the month of November — that central bankers will be able to consider. If that CPI print looks anything like Wednesday's October reading, the professor believes Powell and the Fed will feel serious pressure to take a more aggressive policy stance. That could mean accelerating its timeline for reducing monthly asset purchases, which is supposed to start later this month , or adjusting its thinking on when the first hike from near-zero interest rates might take place. The market is starting to predict the first increase in borrowing costs in June . The three major U.S. stock averages have recently been setting a series of record highs, an extension of their strong performance so far this year. On Wednesday, the Dow Jones Industrial Average , S & P 500 and Nasdaq Composite were all lower, but not overwhelmingly so, as investors digested the latest inflation data. The Nasdaq led the declines, down about 0.6%, while the Dow and S & P were down about 0.25% and 0.3%, respectively. Siegel said he believes the market is fairly valued in general, and he added he expects stocks to continue performing well until the Fed adopts a tougher stance. The professor said a number of factors — such as liquidity in the system, a dearth of attractive investment alternatives to stocks and seasonal tailwinds — "trumps inflation until Powell comes and says, 'You know what, it isn't temporary. It's more serious than we expected. We're going to have to speed up taper and we may have to speed up the rise of interest rates.'"

Jeremy Siegel

David Orrell | CNBC