By Kenneth G. Pringle J
This isn’t a rerun of the 1970s, argues Jeremy Siegel, the author of the seminal Stocks for the Long Run and a professor emeritus of finance at the University of Pennsylvania’s Wharton School. The reason, he says, is that the Federal Reserve “stopped the growth of the money supply this year very dramatically.” That wasn’t the case during the Great Inflation of 1968 to 1983, when the consumer price index surged 186%, or 7.3% annually, exacerbated by two oil crises and high unemployment.
“Today’s valuations look quite attractive,” he says. “I won’t predict we’ve hit bottom, no one can, but an investor in this market may be well rewarded.”
In the ’70s, he adds, no determined effort was made to reduce the money supply until Paul Volcker took over at the Fed in 1979. He pushed the federal-funds rate over 19%; the current target is 1.5% to 1.75%. This led to two recessions but killed off stagflation and ushered in a long, stable period for inflation and unemployment.
Siegel blames our inflation on Washington’s response to the pandemic. “The money[1]supply growth in 2020 was the greatest in the 150-year history of data that we have,” he says. “Instead of spending programs under Trump and Biden,” the Fed should have said, “‘If you want those programs, go to the bond market.’ That’s not inflationary.” Today, there’s a lot of “pipeline inflation that has already passed but won’t get into the statistics for some time.”
We may be in a technical recession, but he sees a relatively soft landing, depending on how soon the Fed eases after the expected July rate hike. “We’re in much better shape than they were” in the ’70s.
