Jeremy Siegel: Fed Risks Depression If It Waits for 2% Inflation

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Housing prices, which figure big in core CPI, really are falling, not rising, he said.
Lagging indicators mean it could take months or years for Fed tightening to appear in official inflation stats.
The reported rise in housing prices is ‘totally ridiculous,’ Siegel said.

Wharton School economist Jeremy Siegel warned that a hawkish Federal Reserve risks pushing the economy into a depression if it waits for core inflation to return to 2%, citing the lagging nature of both the central bank’s policy moves and the data — particularly housing stats — that help inform its decisions.

Siegel, appearing Thursday on CNBC’s “Halftime Report,” said the 0.4% monthly inflation reflected in the newly released September Consumer Price Index doesn’t vindicate the central bank on its aggressive moves to raise the benchmark interest rate to quell rising prices. The CPI indicates prices rose 8.2% over the past 12 months before seasonal adjustments.

Noting the “distorted way” the government handles housing statistics, Siegel called the reported 0.7% rise in prices for the sector “totally ridiculous,” explaining that the lagging figure calculated into the new CPI doesn’t reflect what’s really happening in the housing market.

The housing figure should be down, not up, 0.7%, “which by the way wipes out core inflation for September,” the professor added.

“It’s imperative that the Fed recognizes that that is not an indicator of what the real rate of inflation is,” Siegel said, explaining that the central bank started tightening only in March and it could take months or years for the results to appear in core inflation data.