Fed insider on Jerome Powell's next moves, gold price expectations - Danielle DiMartino Booth
With the Federal Reserve having expended almost all monetary tools now, the only major course of action left, short of directly buying ETFs, is more quantitative easing, said Danielle DiMartino Booth, CEO of Quill Intelligence.
“If you’re at the zero bound, and the Fed has been at the zero bound for much of the last decade, if you’re at the zero bound, the only discussion you’re really having is how do we get more product, how do we get more [quantitative easing],” Booth told Kitco News.
Booth was a former advisor with the Federal Reserve Bank of Dallas from 2006 to 2016, working with Richard Fisher. She is author of “Fed Up: An Insider's Take on Why the Federal Reserve is Bad for America.”
Quantitative easing in 2020 was expedited by COVID, but had already started before the pandemic, Booth noted.
“You have to go back to October 2018, two years ago to see when the first shot came across the bow, that’s when this crisis started. That is when the great buildup of debt began and prompted Powell to pivot after the bloodbath that we saw in December of 2018, which prompted Powell to say, ‘you know what, quantitative easing wasn’t such a bad idea, I apologize for saying that back in 2012,’ and then by the time we got to September 2019, he was doing ‘not QE’, blowing up the Fed’s balance sheet,” she said.
On fiscal stimulus, expectations for an increase from the Democrats are keeping stock markets afloat, Booth said.
“If there is a blue wave, if there is a blue sweep, markets are in a way, celebratory,” she said. “That’s why we’ve seen rates back up a little bit, and that’s why gold is kind of caught in the middle of all of this conflict because if we’re going to see a massive stimulus spending bill, then, the bond vigilantes might be able to wake up after 40 years in hibernation,” she said.
Markets have not yet priced in several key macroeconomic risks, including the possibility of more economic contraction, Booth said.
“I don’t think markets have the economy sliding back into contraction in the fourth quarter factored in. I don’t think that markets have [priced in] the potential disruption of a lame duck congress not being able to pass stimulus until the very end of January, therefore the onset of the household credit cycle,” she said. “Gold will be the ultimate beneficiary though.”