Elites in Davos fear a “Volcker moment” when central banks draw their swords

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Joint warning from Davos is that omnipotent central banks are no longer on your side, so don’t tempt fate by reflexively buying falls.

cash gendarmes they have let go of the inflationary spirit from the bottle and will have to squeeze the markets until they sand the sand to prevent it from now raging across major western economies.

The Fed Road is over. They don’t mind what’s going on in the markets, “said Jason Furman, former president of the White House Council of Economic Advisers.

He noted that interest rates will have to be much higher than previously acknowledged by the US Federal Reserve or as expected by markets.

“They haven’t done enough to prepare people yet,” he said when speaking at the World Economic Forum.

There are growing concerns that the Fed will eventually be forced to release the “Volcker” drug from the late 1970s. She has already started planning a deliberate and (hopefully) controlled accident in equity and asset prices.

“I don’t think the Fed believes its own forecasts or inflation models anymore because they’re so badly burned,” Mr Furman said.

The prevailing view in elite political circles is that the punishment will later be even more painful and devastating if the Fed fails to trigger a ferment.

“It reminds me of Argentina,” described Harvard professor Ricardo Hausmann, a veteran of Latin American crises. An endless series of Fed excuses last yearalthough the economy was flooded with money and inflation was clearly rising.

“There are too many incentives in the pipeline and they will have to work much harder. I’m losing sleep because I think the Fed is far behind the curve, ”he said.

Mr Furman said inflation was driven primarily by excess demand and liquidity in the economy, not by supply chain disruptions or higher energy prices, as the Fed fervently argued until the end of last year. The institution misjudged the calibration of the incentive.

He forecast inflation of 2.2 percent in December this year, but that figure has already reached its highest level in 40 years at 8.5 percent. Fed staff relied on a model of the new Keynesian Phillips curve that omits most of the key components of price shocks and is unable to predict any inflation, Furman said.

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