> Either way, once acute Treasury liquidity problems manifest themselves, or the Fed front-runs and avoids them by shifting policy, there’s a significant probability of it resulting in a top in the dollar index, meaning it would likely mark the end of this major dollar rally, and would be a catalyst for the next leg higher in many commodity prices, which fuels the existing inflation problem even more.
If it's obvious to me that this is exactly what will happen, it should be obvious to Fed board members, no? Therefore, those holding out for a for a pivot could be waiting for a long time.
There seem to be three models:
1. Paul Volker. Smack the economy with a 2x4 to kill inflation. Get back-to-back recessions that were the worst since the Great Depression.
2. Arthur Burns. Bow to political pressure and ignore inflation - maybe it will go away. Get roaring inflation leading into the 1980s.
3. Roy Young. Fight wild speculation by raising interest rates and get the Great Depression.
If it's obvious to me that this is exactly what will happen, it should be obvious to Fed board members, no? Therefore, those holding out for a for a pivot could be waiting for a long time.
There seem to be three models:
1. Paul Volker. Smack the economy with a 2x4 to kill inflation. Get back-to-back recessions that were the worst since the Great Depression.
2. Arthur Burns. Bow to political pressure and ignore inflation - maybe it will go away. Get roaring inflation leading into the 1980s.
3. Roy Young. Fight wild speculation by raising interest rates and get the Great Depression.