Casey Wood, CEO and founder of ARK Investment Management, said on Monday that a stronger dollar "is devastating for the rest of the world and should in turn hit" US competitiveness and economic activity, eventually "forcing the Fed to shift" to its restrictive monetary policy.

Mr Wood said the yield curve "shows" that US monetary policy has not been so strict since the 1980s. Measured by the ratio of the two-year Treasury yield to the 10-year Treasury yield, the two yields are 50 basis points upside down. The current 10-year Treasury yield is 3.75%, while the two-year yield is 4.25%.

According to ARKInvest, US monetary policy is much stricter than it was in the 1980s, when Mr Volcker, then chairman of the Federal Reserve, tripled the federal funds rate from 10 per cent to 20 per cent in an effort to curb inflation. Chairman Powell and his team raised interest rates 13-fold, from 0.25% to 3.25%, to curb inflation.

In the Volcker era, long-term Treasury yields rose 1.6 times, from 10% to 16%, while in Powell's era, long-term yields rose 7.4 times, from 0.5% to 3.7%. Risk aversion is hitting all assets except cash, but the Fed seems determined to raise interest rates by more than 100 basis points to protect its policy legacy.

Meanwhile, commodity prices, as measured by Refinitiv's CRB index, are down about 42% from their peak in mid-2008, about 25% from their 2011 low, and about 19% from their low earlier this year.

The dollar's trade-weighted exchange rate has risen by 58% since the beginning of 2008, which helps explain why deflationary forces are building up again. Most goods are priced in US dollars.

Inflation in the late 1970s and early 1980s has been brewing for 15 years, with the Vietnam War and the Great Society program that began in 1964 and exacerbated by the end of the gold standard in 1971.

When the Fed began to deal with the current inflation, inflation had been brewing for about 15 months, not 15 years. Today, the Fed is using 13 times more powerful means to curb inflation than the sledgehammer used by Volcker in the 1980s. In doing so, the Fed could undermine its policy legacy.

Last week, Japan and China sold dollars to protect their currencies from the parabola of the dollar, Mr Wood said. A stronger dollar is doing significant damage to the global economy. In other words, they began to "loosen" dollar-based monetary policy by injecting more dollars into the financial system.

The selling of dollars by Japan and China may be the first sign that "monetary easing" is coming. The parabola of the dollar has had a devastating effect on the rest of the world and should in turn damage US competitiveness, jobs and economic activity, forcing the Fed to turn.