Zoltan Pozsar on why the Fed needs to spark a market crash to bring down inflation

Bloomberg/Tracy Alloway/2-17-2022

“In a note published late on Wednesday, Pozsar argues that in order to tame inflation, the Fed needs to mount a Paul Volcker-style shock strategy aimed at popping valuations in risk assets that range from stocks to credit and even crypto. And while that’s a pretty controversial idea on Wall Street, Pozsar’s argument is that tightening financial conditions in this manner would allow the Fed to slow services inflation (including owner’s equivalent rent, or OER) without completely derailing growth.”

USAGOLD note: Scary to think that the only way the Fed can rein in inflation effectively is to induce an economic coma (including a financial crash), but that precisely is what Zoltan is suggesting. Why would the Fed go to so much trouble to save the economy from a pandemic only to blow it up to fight inflation? An inflation, by the way, it still claims is temporary.