Wharton's Jeremy Siegel says the Fed has long way to go to slow inflation, which will keep pressure on stocks

Published Tue, Apr 12 20221:44 PM EDTUpdated Tue, Apr 12 20224:16 PM EDT

Investors should expect more monetary tightening ahead from the Federal Reserve to combat inflation, which could continue weighing on stocks, according to Wharton School finance professor Jeremy Siegel. The latest consumer price index reading showed inflation running at its hottest pace in decades. Consumer prices rose 8.5% in March from the year prior, the biggest annual jump since 1981, the Labor Department released Tuesday. The Fed in March raised its benchmark interest rate for the first time since 2018 as a measure to address inflation. The federal funds rate is now in a range of 0.25%-0.5%. The central bank also suggested more rate hikes could be coming. "I think the Fed has to continue at least 50-basis-point hikes for a number of meetings," Siegel told CNBC's " Halftime Report " on Tuesday. One basis point equals 0.01 percentage points. "The Fed really has to get above 3%, 3.5% if it wants to slow the inflation, which I still think is moving through the system." Siegel sees elevated inflation continuing for "many months to come." The professor noted the economy is battling "a lot of negative forces for inflation in terms of making inflation worse," such as elevated energy prices. The cost of commodities such as oil and natural gas surged as the war in Ukraine raises concerns about global supply shortages. Stocks have struggled this year amid inflation, rate hikes and the war. The S & P 500 is down about 7% in 2022 as of midday Tuesday. Siegel said he believes the pressure on stocks will continue. "What do we see? Exactly what we have seen: a very choppy market and a rotation, which I think will continue towards those stocks that have more near-term cash flows," Siegel said. In particular, growth-oriented parts of the market such as technology shares could continue being hard hit, Siegel said. However, tech names with cheaper valuations could fare better than peers, according to the professor. "I'm not ready to say that, you know, technology is off to the races, although there's a lot of tech stocks that are, you know, selling for fairly reasonable 19, 20 times earnings. Certainly, they're fine, but any of anything more than that, I still think is going to be disadvantaged in this sort of market," Siegel said.

Jeremy Siegel

David Orrell | CNBC