William Dudley, the former president of the New York branch of the Federal Reserve, said on Wednesday (6th) that the method of inflation controlled by the Federal Reserve is very simple, and the most effective way is to set off a bloodbath in US stocks and US bonds and make investors suffer. Suffering.
Wall Street ushered in the “hawk-sounding” minutes of the Federal Reserve’s March meeting on Wednesday, which mentioned that Fed officials plan to cool the stubbornly high rate of Inflation.
However, William Dudley, the former president of the Federal Reserve’s New York branch, on Wednesday called for the Fed to lose money for investors, in stark contrast to the long-standing concept of Fed put options.
The Fed put option is a metaphor for the Fed’s decision to stop monetary tightening or take other measures to bail out following heavy losses in financial markets.
Dudley believes that it is difficult to know how much the Fed will need to do to control the hottest inflation in 40 years, but one method is sure to work, and that is to make US stock and US Treasury investors suffer more losses so far.
U.S. stocks began to fall in 2022, partly because the Federal Reserve is preparing to actively raise interest rates and shrink its balance sheet to control inflation, but the main index of U.S. stocks has not fallen much. As of Wednesday’s close, the S&P has only fallen by 6.58% this year.
Dudley acknowledged that the Fed will have to navigate a myriad of uncertainties, including mitigating the impact of supply chain disruptions and a historically tight labor market. But the impact of tighter monetary policy on financial and economic activity is one of the biggest unknowns.
Unlike many other economies, the U.S. does not respond directly to changes in short-term interest rates, in part because most U.S. homebuyers have long-term, fixed-rate mortgages, but compared to other countries, much of the wealth of many American households is Betting on stocks makes them sensitive to financial conditions.
Dudley said investors should listen to Fed Chairman Powell, who made it clear that financial conditions must tighten and the Fed will have to shake markets to get the expected response, which would mean a much higher rate hike than the current expectations of market participants, becauseIf the Fed wants to control inflation anyway, they will have to raise U.S. Treasury yields while driving down stock prices.
Dudley, who headed the New York branch from 2009 to 2018, was a former Goldman Sachs U.S. economist and is now a senior research scholar at the Center for Economic Policy Research at Princeton University.
