Fed Chairman Powell needs to ‘shock the market’ in the central bank’s fight against inflation, says 1970s ‘Dr. Doom’ Henry Kaufman

  • Fed Chair Jerome Powell needs to “shock the market” as part of the central bank’s fight against inflation, Henry Kaufman told the FT.
  • “If you want to change someone’s view … you have to hit them in the face,” Kaufman said. 
  • Kaufman’s 1982 call on interest rates while working at Salomon Brothers was credited with kicking off a bull market. 

The Federal Reserve needs to amp up its resolve in combating inflation that’s hovering around four-decade highs, renowned economist Henry Kaufman told the Financial Times

“I am still waiting for him to act boldly — ‘boldly’ means he has to shock the market,” the former Solomon Brothers economist said about Fed Chairman Jerome Powell in an interview published Wednesday. “If you want to change someone’s view, if you want to change someone’s action, you can’t slap them on the hand, you have to hit them in the face.”

94-year-old Kaufman, who predicted the 1966 credit crunch, sees Powell as falling behind the stride of Paul Volcker, who led the Fed in aggressively raising interest rates in the 1970s and 1980s.

“Back then, monetary policy under Paul Volcker was ahead of the curve . . . He was in the process of turning around market expectations,” said Kaufman. 

Powell last year revised his view on inflation from seeing it as transitory to warning in November that prices threatened to remain “persistently high.” Kaufman said too much time ran between Powell’s warning until the Federal Open Market Committee began raising interest rates in March

“His forecast was right, his inaction was wrong,” said Kaufman, who was dubbed “Dr. Doom” for his gloomy outlook on high inflation and interest and the bond market.

Interest rates were falling in 1982 before Kaufman changed his bearish view and predicted a sustained decline in rates. His August 17, 1982, call was credited with kicking off a global bull market. 

Under Powell, the Fed this year has raised the fed funds rates four times to a range of 2.25%-2.5%. Investors anticipate more increases as inflation sits well above the central bank’s target of around 2%. The Fed has three meetings left this year, in September, November, and December.

Headline inflation rose to 8.5% in the year through July, cooling from June’s 9.1% rate which was a 41-year high.