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The U.S. Fed Needs To Raise Rates For Possible QE4 - Chief Strategist

(Kitco News) - As markets digest the recent central bank meeting in Jackson Hole, Wyoming, one market participant says that the U.S. Federal Reserve has ulterior motives to push up an interest rate hike.

Keith Fitz-Gerald, chief investment strategist for, noted that the central bank needs to raise rates to allow for a potential fourth round of quantitative easing. ‘The Fed wants desperately to raise rates not because there is inflation but in the event they have to do QE4,’ he said in an interview with Kitco News. The central bank has held short-term rates near zero since December 2008; the impending end of that era may be around the corner.

Fitz-Gerald acknowledged that it is counterintuitive to think they would raise rates to print money, but said it is the only option the central bank has.

‘When you take off the rose-colored glasses and you get past the illusion of prosperity they try and create, it makes sense,’ Fitz-Gerald said. ‘Right now we have a zero interest rate policy -- the Fed can’t do anything else if it has to -- what that tells me is that things are so difficult that they may have to resort to more money printing down-the-line and raising rates gives them the opportunity to do that.’ 

After months of speculation surrounding a September rate hike, the Jackson Hole Symposium showed a more concrete direction for an interest rate hike. The consensus from the  gathering of world central bankers is that the Fed should  begin tightening monetary policy with rate hikes as early as mid-September. Fed Vice Chair, Stanley Fisher, added to the speculation by noting that the Fed wouldn’t need to see inflation pick up to justify a rate hike. 

As for the September timing, Fitz-Gerald said it would be ‘totally irresponsible.’  Citing a weak China, a downbeat consumer, lackluster data and an America public that has been ‘absolutely eviscerated,’ Fitz-Gerald highlighted this is the wrong time to raise rates. ‘They missed the window yet again,’ he said. 

On the topic of gold, Fitz-Gerald said investors should be looking at the yellow metal. Gold is off the 6-week high it hit in August on concerns over China’s weak economy and stock market volatility, but Fitz-Gerald said investors need it in their portfolios. “No investor today can afford to be without gold – gold is not necessarily an inflation protector like everybody thinks it is but definitely correlated to interest rates,” he said. 

By Daniela Cambone of Kitco News;
Follow me on Twitter @DanielaCambone



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