The Fed's economic outlook is 'absurd' and there's no way to lower inflation while stabilizing the banking system, Wharton Professor Jeremy Siegel says

• The Fed's economic outlook is "absurd," according to Jeremy Siegel.
• The famed Wharton professor pointed to the Fed's economic projections at the last FOMC meeting.
• Officials won't be able to stabilize the banking system while lowering inflation to 2%, he warned.

The Fed's economic outlook is off-base and despite remarks that suggest otherwise, there's no way that central bankers can lower inflation and stabilize the banking system at the same time, according to Wharton professor Jeremy Siegel.

"Let me tell you … how absurd the Fed's conference and projections are absurd," the top economist said in an interview with CNBC on Friday, referring to the Fed's economic forecasts released at the last Federal Open Markets Committee meeting.

After raising interest rates another 25 basis points on Wednesday, central bankers lowered their forecast on economic growth this year to 0.4% from a prior view of 0.5%.

Siegel interpreted that to mean negative GDP growth over the next three quarters, implying a technical recession. Though recessions are officially declared by the National Bureau of Economic Research, technical downturns are defined by at least two straight quarters of contraction.

Fed officials were likely underestimating the impact of SVB's failure on financial conditions, Siegel said, as markets had originally expected officials to hike rates 50 basis points before the bank turmoil.

That implies the Fed sees the impact of SVB's failure to be equivalent to a rate hike of 25 basis points, though it's likely double or triple that amount, he added – meaning the Fed's most recent policy move is upping the danger the economy is being overtightened.

"I don't know if the Fed understands the implications of its own numbers," he said.

Siegel also pointed out that he previously warned there's no way for the Fed to simultaneously stabilize the banking system and lower inflation to its 2% target. That's contrary to what officials have suggested, with Fed Chair Jerome Powell assuring markets of the strength of US banks while reiterating the 2% target.

Market commentators have been warning of a possible recession, as the Fed raised interest rates to fight inflation. High rates risk overtightening the economy into a recession – and experts say the risk has grown with the collapse of SVB, as banking woes reduce credit and slow the economy.

Siegel has been a vocal critic of the Fed's monetary policy, and has made the case for months that central bankers should pause or pull back on interest rate hikes, as a recession "inevitable" if Fed continues to keep its monetary policy restrictive.

Markets are now pricing in a 62% chance the Fed will decide to keep interest rates at the same level at their next policy meeting, with a 51% chance of 25-basis-point rate cut in July, according to the CME FedWatch tool.