MacroVoices #544 Viktor Shvets: How Markets Survive Disruption

Core view: disinflation is the trend, policy is the noise. Shvets says he hasn't changed his multi-year call — "we're living in a disinflationary world," driven by technology pushing labor, products, and marginal costs toward zero (he cites Musk's framing that long-run value for labor and most products trends to zero). What looks like a stagflation episode is, in his view, a series of self-inflicted inflationary spikes — COVID, Russia-Ukraine, the Iran war, and "chaotic trade or immigration policies" — layered on that disinflationary base. His counterfactual: under a Harris administration, tariffs and immigration restriction would likely still have tightened, but less violently, and he doubts an Iran war would have happened at all; three-month annualized inflation under Biden was already near 2%, and absent the spikes he thinks inflation today would be at or below target.

The risk Shvets flags for the Fed to watch: repeated "transient" shocks can behave like permanent ones if businesses and workers start expecting the next spike and reprice/bargain accordingly. His tests for whether that's happening: consumer/business surveys (NFIB price-expectation data shows no unanchoring) and inflation breakevens/swaps. During the Iran war, 1- and 2-year swaps spiked toward 3–5%, but 5y5y and 10-year swaps stayed anchored at 2.2–2.4%; post-war, the short end has normalized back below 2%. On his read, that's still consistent with transient, not permanent, inflation.

Fed mechanism: the Supreme Court, per Shvets, has effectively stripped independence from most federal agencies but carved out an exception for the Federal Reserve — a decision he calls intellectually inconsistent but real. He characterizes Kevin Warsh as "not an inflationary hawk or dove" but a politician whose stated goals (less communication, returning risk to markets, shrinking the Fed's footprint) are individually reasonable but operationally unworkable — less communication simply creates "shadow chairs" filling the vacuum. He notes the FOMC currently lacks a dominant voice (Warsh is one vote of 19, controlling 12 at any time) and that dot-plot dispersion on the neutral rate is unusually wide — Stephen Miran's near-zero real neutral rate versus dot-plot estimates near 1–1.5% (implying policy rates of 2.5% versus 3.5–4%, roughly where the Fed sits today). Shvets says both camps are defensible because much of today's risk (polarization, geopolitics, climate, healthcare, tech disruption) sits outside anything a central bank can model — that gap is the source of policy whiplash. His concern: an under-tested, low-consensus Fed chair is fine absent a crisis, but a real emergency in the next six to twelve months would need a chair capable of driving consensus, which Warsh has not yet built.

Geopolitics — two different wars, two different endpoints. Shvets compares the Iran conflict to Vietnam: no clear U.S. objective, no defined victory condition, aerial bombardment historically fails and tends to unify rather than fracture the targeted population, and regime change would require ground occupation the U.S. isn't pursuing. Iran retains alternate chokepoints beyond Hormuz — he points to the Houthi push into the Red Sea as evidence — and modern technology, per the Ukraine precedent, lets smaller/poorer actors rebuild destroyed infrastructure fast, leveling the playing field. He expects the conflict to grind on indefinitely with recurring flare-ups. Russia-Ukraine, by contrast, he compares to Korea: brutal but likely to conclude with a negotiated separation of forces, possibly within a year; his expectation is Ukraine integrates into the EU (agriculture, manufacturing, defense, IT) and evolves toward a