Bloomberg News: Risk of a 1970s-Style Inflation Shock is Rising, Warns Brevan Howard

Article by Nishant Kumar in Bloomberg News

Global price rises risk turning into 1970s-style inflation shock, which eventually led to recession and high unemployment, according to hedge fund giant Brevan Howard Asset Management. 

The macro trading firm, which is off to one of its best gains in nearly two decades of trading, said the current macro environment is as complicated as at any time during the last 75 years, according to its annual outlook. 

“This combination of high inflation, tight labor markets, and uncertain inflation expectations introduces the prospect of a 1970’s style wage-price spiral which proved very costly to reverse during the Volcker Era,” according to the note to shareholders of a listed fund, which it manages.

Brevan Howard, one of the best-known macro hedge fund firms with about $19 billion in assets, invoked a period of crippling inflation decades ago when former Federal Reserve Chairman Paul Volcker delivered the so-called Saturday Night Special, a radical -- and unexpected -- tightening of monetary policy on an October weekend in 1979. Volcker’s tightening of monetary policy led to a recession and high unemployment but ultimately reined in spiraling inflation.

Right now, the Fed is “significantly” behind the curve in raising rates, which should be between 4% to 6% based on traditional approaches to monetary policy, the firm said in a rare comment on the market outlook, adding that both risk assets and fixed income tend to underperform in such an environment.

Brevan Howard echoes comments from veterans such as .......

To read this article in Bloomberg News in its entirety, click here.