Fed has now backed themselves into a corner where stimulus is useless
(Kitco News) - The Federal Reserve’s inter-meeting emergency 50-basis-point interest rate cut last week was a panic move and will continue to support gold prices, said Adrian Day, CEO of Adrian Day Asset Management. “You can’t fight a virus with a rate cut,” Day told Kitco News, on the sideline of PDAC 2020, the world’s largest mining conference.
“I think the Fed the Fed has completely boxed themselves into a corner by keeping rates too low for too long. And now it has no impact.” In the current environment with massive volatility, Day said that all investors should make gold their base in a portfolio as an insurance policy.
He added that because of central bank easing and more fiscal spending, he sees gold prices trading between $1,700 and $1,750 by the end of the year.
The Fed’s decision to cut rates last week prompted a selloff in equities, which Day attributed to poor confidence from investors.
“Having a rate cut, especially a 50-point rate cut between meetings just because the market had a hissy fit and demands it, is really a panicky move, and the reaction in the Dow is telling us this. Participants see this as a panicky move, and that’s negative,” he said.
Day said that the Fed has now backed themselves into a corner with little monetary ammunition left.
“Part of the problem is, everybody knows this is not the last rate cut. The whole point of cutting rates as a stimulus, it’s only a stimulus if you cut rates and people say ‘wow, look at these wonderful low rates, let me go buy a car, let me refinance my house, let me borrow some money to do something,’” he said, adding that there is no incentive for people to make use of low rates if they expect rates to head even lower.