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Inflation will remain high until final market capitulation: Komal Sri-Kumar - YouTube
Channel: CNBC Television
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three we were having a conversation
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earlier that the case is being made for
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either somewhere between 100 basis point
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hike next time or no hike so we've got a
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wide range of opinions some people think
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that Commodities are already rolling
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over and that we need to be careful
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already about dampening demand too much
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others think you know prices are still
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surging and we got to get it under
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control what do you think we need to do
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what do you think the FED will do
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sure two points one even when they lost
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time when they moved up by 75 basis
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points I had recommended publicly that
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they go up a hundred basis points and
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cut QE reduce the bond Purge uh as
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Holdings by 100 billion dollars per
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month and start it off immediately of
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course they didn't do either of those it
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was just 75 I expect there will be one
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more 75 coming at the end of July as fed
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president Loretta Mester talked to CNBC
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a few hours ago I don't think anything
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more is going to happen here is the
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problem yes come on some Commodities are
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turning over but the others are not fuel
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is not fuel is again oil prices crude
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prices are again up today and food
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prices are not coming down either rent
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is going to keep accelerating these
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three components of inflation are going
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to be very significant they will keep
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both the inflation rate and the treasury
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yield high so there is no way the FED
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can relax even if it ends up in a
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recession you have to face a recession
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for a simple reason you the FED
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misjudged inflation more than a year ago
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and it is like you're doing Penance
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today there is no way out for you at
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this stage because of the seriousness of
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the error about calculating inflation
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so we lived we lived a little too well I
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guess and it was uh it wasn't based on
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uh
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something that would be lasting
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something that that was actually
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economically uh viable I guess and we we
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should know that uh tree that the FED
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cannot make our lives better it can make
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it feel better for a little while but
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you need the actual
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economic activity from the private
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sector which is which is how you make
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gains so
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we have painted ourselves into a corner
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right now that it's going to be
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difficult to get out of let me ask you
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this then
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the markets have already reflected a lot
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of this and individual names a lot of
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the biggest High Flyers a lot of air has
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come out of those at 3 800 or so on the
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S P what's what's a more realistic
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number for that would in your view
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reflect these these issues these
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problems at 3500 3000 what where does
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the grind lower take us
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to pick a number I'll pick somewhere in
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between the two numbers you mentioned
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something like 3300 on the S P so you
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have still quite a way to go
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and also the VIX Index is I think still
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low there is not enough panic in the
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market there is not enough Blood on the
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street
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and until that happens that that is not
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the end the capitulation has not
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happened yet Joe and that's why the FED
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has to keep acting and until the
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financial markets come down and you have
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a final capitulation on the equity side
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inflation is going to remain high and
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here is one key issue the FED has two
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mandates supposedly growth and inflation
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but it has generally behaved as if it
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has only one mandate growth and boosting
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the equity markets it is time to switch
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to inflation and since it is doing it so
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late and for the first time in a long
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long while they have to do it for a lot
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longer even if growth suffers that's the
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tragedy of the situation
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