In an interview last month with CNBC, Wharton finance professor Jeremy Siegel discussed the money supply, inflation, and the market outlook for the next 2-3 years.
Here is a summary of Siegel’s comments:
- The unprecedented monetary expansion and fiscal support will eventually “explode” into inflation, says Siegel: “I’ve been an inflation worrier for the last year.”
- Jay Powell, according to Siegel, “is the most dovish Fed chairman I’ve ever seen, not acting against what is obviously inflation. And we’re going to have a lot more.”
- Since the beginning of the pandemic, Siegel reports, the money supply has increased by almost 30%. “That money is not going to disappear,” he says, “it’s going to find it’s way into spending and higher prices.”
- The increase in money supply could “easily” lead to 20% total inflation over the next 2-3 years, according to Siegel. “Then the Fed is going to be forced to stop it and then there’s going to be a bump in the road.”
- Stocks will remain attractive until then, he argues, noting that “bonds and cash assets are the worst” investments and dividends will continue to be a draw.
- “Stocks more than compensate for inflation,” he notes, “and there are a lot of dividend-paying stocks” offering between 2% and 5% versus negative real returns for Treasury notes. “So, why would you go fixed income? I mean, the gap is huge.”
- The current landscape will result in money continuing to flow into stocks, says Siegel, “despite the fears that the Fed will tighten in the future.”