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Barclays warns of disaster as Fed loses all credibility

By cpowell

Created 2008-06-27 02:02

By Ambrose Evans-Pritchard
The Telegraph, London
Friday, June 27, 2008

FULL ARTICLE AT: http://www.telegraph.co.uk/money/main.jhtml?xml=/money/

2008/06/27/cnbarclays127.xml

Barclays Capital has advised clients to batten down the hatches for a worldwide financial storm, warning that the US Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall "below zero."

"We're in a nasty environment," said Tim Bond, the bank's chief equity strategist. "There is an inflation shock under way. This is going to be very negative for financial assets. We are going into tortoise mood and are retreating into our shell. Investors will do well if they can preserve their wealth."

Barclays Capital said in its closely-watched Global Outlook that US headline inflation would hit 5.5pc by August and the Fed will have to raise interest rates six times by the end of next year to prevent a wage-spiral. If it hesitates, the bond markets will take matters into their own hands. "This is the first test for central banks in 30 years and they have fluffed it. They have zero credibility, and the Fed is negative if that's possible. It has lost all credibility," said Mr Bond.