Reverse Volcker Moment

The reverse Volcker moment is a phrase created by PIMCO CEO Mohamed El-Erian.  The term Volcker moment refers to the anti-inflation initiative led by former Federal Reserve Chairman Paul Volcker.  When inflation was rampant in the late 1970s, Paul Volcker made the difficult decision to raise interest rates dramatically in an attempt to reign-in inflation.  Volcker’s efforts ultimately proved successful, and his decision to aggressively raise rates is referred to as the Volcker moment.  Mohamed El-Erian uses the term reverse Volcker moment to refer to recent decisions by the Federal Reserve that mark the beginning of a new era of monetary policy in which a greater emphasis is placed on unemployment objectives while inflation targeting (taming inflation) becomes less of a priority.  The risks of the reverse Volcker moment are that monetary authorities lose some of their political independence and inflation-fighting credentials.