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Wannabe Volcker

Sep 22, 2022

Paul Volcker, the Chairman of the Fed in the 1980’s who successfully brought down hyperinflation by raising rates aggressively, named his autobiography “Keeping at it.”. In his speech yesterday after the 75 bps rate increase yesterday, the current chairman Jerome Powell is quoted: “We must keep at it until the job is done.” What scared financial markets was not the expected 75 bps expected increase, but the perspective of much further tightening to come. The question now is how much unemployment and recession a hawkish Fed will tolerate to curb inflation. We still suspect that a/ the current Fed will not stand the heat as Volcker did in the 80’s as the support for hawkish policies is limited and b/ some of the inflationary pressures we currently see will fade out over time.

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