Higher inflation in the future could force the Fed to withdraw loose monetary policy early and shake the stock market, Jeremy Siegel, a professor of finance at Wharton, said on Friday.
"We will face more inflation next year," Siegel said. You see that when inflation worsens, the Fed will come under pressure, which will disrupt the market, which will be inevitable. "
The Fed said on Wednesday that it may soon scale back its asset purchase program. Federal Reserve Chairman Colin Powell says the tapering process is likely to end in the middle of next year. Nearly half of the FOMC committee members think that interest rates will be raised at least once in 2022.
But Siegel believes the Fed may need to take more aggressive action to control inflation.
"if things get worse, we will have to scale back our bond purchases more quickly. If this happens at the end of the year, it will make the market uneasy, "Siegel said."
Siegel also pointed out that he is worried that the Fed may have gone too far in dealing with rising prices.
"I'm actually worried about [the Fed] overreacting. Because we are going to face a lot of inflation, I think it is already brewing, "Siegel said." There is nothing the Fed can do about it. If they panic and say,'Oh, my God, we're far behind the curve, let's raise interest rates'. That would be bad. This will really bring trouble to the market and the economy. "
Although Siegel believes that inflation-related market woes will emerge in early 2022, he believes there should be room for the market to rise in the short term.
"I think the path for the next month or two looks clear," Siegel said. "We will see the market rise 10% before falling 10%."