Federal Reserve Chairman Jerome Powell needs to get even more aggressive in order for the central bank to successfully tame decades-high inflation, according to the famed economist originally known as “Dr. Doom.”
Henry Kaufman, who had a famed stint working for Salomon Brothers during the inflation crisis of the 1970s, asserted that Powell has been too cautious in his leadership of the Fed as inflation hovers at 8.5%.
“I am still waiting for him to act boldly — ‘boldly’ means he has to shock the market,” Kaufman said during an interview with The Financial Times. “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.”
Kaufman provided his critical view even after the Fed delivered its first three-quarter percentage point hikes since 1994 at two consecutive meetings as it attempts to bring down prices. Similar hikes are expected to continue at least through the end of this year.
But “Dr. Doom” said Fed policy under Powell is still “somewhat behind the curve” in its inflation fight. That’s in contrast to former Fed Chair Paul Volcker, who was “ahead of the curve” when he aggressively hiked rates to address the 1970s surge in prices, according to Kaufman.
Kaufman noted that the Fed’s first move to hike rates last March came months after Powell first called out “persistently higher inflation” within the US economy.
“His forecast was right, his inaction was wrong,” Kaufman added.
Investors expressed optimism earlier this month after a better-than-expected July Consumer Price Index report showed a slight downtick in inflation.
At present, the market is pricing in a 52.5% probability of a half-percentage point hike at the Fed’s next meeting in September and a 47.5% probability of another three-quarter point hike, according to CME Group data.
Kaufman isn’t the only economist to have earned the “Dr. Doom” moniker after making dire predictions.
Nouriel Roubini, the CEO of Roubini Macro Associates and a former economic adviser to the Clinton administration, is known by the same nickname. He is known for being one of the most prominent analysts to accurately predict the looming housing market crash ahead of 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 rate hikes or persistently high inflation.
“The fed funds rate should be going well above 4% — 4.5% to 5% in my view — to really push inflation towards 2%,” Roubini said during an appearance on Bloomberg on Monday. “If that doesn’t happen, inflation expectations are going to get unhinged.”
“Or if that happens, then we are going to have a hard landing,” Roubini added. “Either way, either you get a hard landing or you get inflation getting out of control.”
Roubini also described optimism that the Fed could slow the pace of its hikes or even cut rates next year as “delusional.”