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The Federal Reserve has a limited playbook no matter who is on the board - Sprott's Grosskopf

Kitco News

The U.S. senate is on its way to filling vacant seats on the Federal Reserve’s board of governors and although one pick has been plagued with controversy, one fund manager does not expect the new members to derail the central bank’s current plan to pump massive levels of liquidity to stabilize financial markets and the global economy.

In an interview with Kitco News, Peter Grosskopf, chief executive officer at Sprott Inc. said that he doesn’t expect any new Fed member to have much impact on the future direction of interest rates as rising debt gives the central bank little room to maneuver.

“The fed looks like it's getting more dovish. And I would say in the end it doesn't matter that much anymore because the debt loads are just so high that nothing but low rates and nothing, but modern monetary printing will suffice,” he said. “I just don't think the fed has a very large playbook going forward.”

The Federal Reserve’s unprecedented reaction to the economic impact of the COVID-19 pandemic has been a significant factor behind gold’s current rally, culminating in new all-time highs. Since March the Federal Reserve and cut interest rates to zero and pumped trillions of dollars into financial markets to stabilize the economy after nations around the world implemented strict lockdown measures in an attempt to slow the spread of the coronavirus.

Grosskopf’s comments come less than a week after the Senate banking committee approved former economic advisor to President Donald Trump Judy Shelton nomination to fill a vacant seat at the Federal Reserve. It is expected that her position will be confirmed by the Senate. It has been a significant rollercoster ride for the Whitehouse as it tries fill the empty position; Trump’s first two nominations failed to get approval from the Senate.

Shelton’s confirmation process has also been fairly precarious as she has once advocated for higher interest rates following the 2008 financial crisis only to turn dovish in 2019, saying that interest rates should be cut to zero.

Shelton has also been an advocate of returning the U.S. dollar to a type of gold standard.

“It’s entirely reasonable to ask whether this might be better assured by linking the supply of money and credit to gold or some other reference point as opposed to relying on the judgment of a dozen or so monetary officials meeting eight times a year to set interest rates,” she said in commentary published in the Wall Street Journal April 21, 2019.”

Grosskopf said that the idea of a return to a gold standard would be positive for the yellow metal.

“I don't see how backing currencies in any measure with gold. Is going to be anything other than positive for gold,” he said. “If anything, it would be a practical limit on the amount of the basement that could occur. So that's probably a good thing too.”

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