The Fed has yet to “shock the market”: economist Henry Kaufman

Federal Reserve Chair Jerome Powell needs to become even more aggressive for the central bank to successfully tame decades of inflation, according to the famous economist, originally known as “Dr. demise.”

Henry Kaufman, who worked for Salomon Brothers during the inflationary crisis of the 1970s, claimed that Powell was overly cautious in his management of the Fed as inflation hovered around 8.5%.

“I’m still waiting for him to act boldly — ‘bold’ means he has to shock the market,” Kaufman said in an interview with the Financial Times. “If you want to change someone’s mind, if you want to change someone’s action, you can’t slap their hand, you have to slap their face.”

Jerome Powell
Fed Chair Jerome Powell has hinted that more sharp hikes may be on the horizon.
AFP via Getty Images

Kaufman was critical even after the Fed raised its first three-quarters of a percentage point at two consecutive meetings since 1994 as it attempted to cut rates. Similar hikes are expected to continue at least until the end of this year.

But “Dr. Doom,” said Powell’s Fed policy, still “a bit behind the curve” in its inflationary battle. This is in contrast to former Fed Chairman Paul Volcker, who Kaufman says was “ahead of the curve” when he aggressively raised rates to counter the price surges of the 1970s.

Kaufman noted that the Fed’s first rate hike last March came months after Powell first called for “sustained higher inflation” in the US economy.

“His prediction was right, his inaction was wrong,” Kaufman added.

Investors voiced optimism earlier this month after a better-than-expected July CPI report showed a modest decline in inflation.

Currently, the market is pricing in a 52.5% chance of a half-point hike at the next Fed meeting in September and a 47.5% chance of another three-quarter-point hike, according to CME Group data.

Kaufman isn’t the only economist to use the “Dr. Doom” moniker after making dire predictions.

Nouriel Roubini, CEO of Roubini Macro Associates and former economic adviser to the Clinton administration, is known by the same moniker. He is known for being one of the most prominent analysts who accurately predicted the impending collapse of the real estate market before the Great Recession.

Earlier this week, Roubini told Bloomberg that he sees either a “hard landing” for the US economy due to the Federal Reserve’s sharp hikes in interest rates, or persistently high inflation.

“The fed funds rate should be well above 4% — 4.5% to 5% in my opinion — to really push inflation towards 2%,” Roubini said Monday, speaking to Bloomberg. “If that doesn’t happen, inflation expectations will get out of whack.”

Henry Kaufman
Henry Kaufman was nicknamed “Dr. Downfall” in the 1970s.
Bloomberg via Getty Images

“Or if that happens, we’re going to have a hard landing,” added Roubini. “Either way, it’s either a hard landing or inflation spiraling out of control.”

Roubini also described optimism that the Fed could slow the pace of its rate hikes or even cut rates over the next year as “delusional.” The Fed has yet to “shock the market”: economist Henry Kaufman


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