Even with several doses of strong medicine, it would take at least a year for inflation to moderate to 3%, Kaufman said. The median forecast of economists surveyed by Bloomberg is for consumer prices to rise by less than 3% by year-end,

“The longer the Fed takes to tackle a high rate of inflation, the more inflationary psychology is embedded in the private sector -- and the more it will have to shock the system,” Kaufman said.

Kaufman was born in Germany during the Weimar Republic and fled the Nazi regime in 1937. He earned a PhD in banking and finance at New York University, worked for the Fed as an economist and then, over a quarter century at Salomon, became Wall Street’s authority on the bond market and monetary policy.

Big Call
He was called “Dr. Doom” for his bearish views and his criticism of government policy. But in 1982, Kaufman famously predicted that interest rates would fall -- triggering a historic rally in stocks and ushering in the bull market.

Today, he’s hardly alone in calling for faster rate hikes. Others including former Treasury Secretary Lawrence Summers have said recently that the Fed is underestimating the challenge of bringing inflation under control.

Read more: Summers Says Fed, Markets Too Sanguine on Anti-Inflation Steps

Kaufman’s perspective is distinguished by his being one of the few of the people who held senior roles on Wall Street in the late 1970s and is still closely studying the markets. Another such veteran is Byron Wien, Blackstone Inc.’s 88-year-old vice chairman of private wealth solutions. In his annual “Ten Surprises” note, posted this month, Wien and his colleague Joe Zidle predicted that “persistent inflation becomes the dominant theme,” the Fed is forced to raise rates four times in 2022 and the 10-year Treasury yield climbs to 2.75%.

In Kaufman’s view, Powell made two key errors as Fed chief over the course of 2021. The first was attributing some inflation to direct and indirect effects of the Covid-19 pandemic, something he said is “impossible to measure” and thus unknowable with any precision. The second was calling it transitory.

‘Dangerous’ Signal
“It’s dangerous to use the word transitory,” Kaufman said. “The minute you say transitory, it means you’re willing to tolerate some inflation.”

That, he said, undermines the Fed’s role of maintaining economic and financial stability to achieve “reasonable non-inflationary growth.”