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The 'debt ceiling drama' can 'neutralize' Fed tightening - Danielle DiMartino Booth

Kitco News

(Kitco News) - Although the Federal Reserve has been tightening its monetary stance over the past year, raising interest rates by 425 basis points, fiscal policy can "neutralize" Fed moves. That is according to Danielle DiMartino Booth, a former Federal Reserve Advisor and author of FED UP: An Insider's Take on Why the Federal Reserve is Bad for America.

"The debt ceiling drama that we're going to see played out, day after day, into June, [means] the Treasury is going to be pumping money into the economy that was not necessarily anticipated," she said. "It effectively neutralizes the effect of The Fed pulling liquidity out of the markets."

The debt ceiling, currently set at $31.4 trillion, is the legal limit at which the U.S. government can borrow money. With Ukraine war allocations and other discretionary spending rising, the Congress is expected to raise the debt ceiling, allowing it to borrow more funds.

Although DiMartino Booth claimed that government spending could be a boon for markets, she predicted that inflation would come down.

"There are several big banks who have come out and begun to warn about disinflation in 2023," she said. "That was unthinkable twelve months ago. And yet, M2 money growth is telling us that that is exactly what is percolating."

After reaching a peak of $21.7 trillion in May of 2022, the M2 money supply in the United States came down to $21.2 trillion in December, a fall of 2.3 percent.

DiMartino Booth spoke with David Lin, Anchor and Producer at Kitco News.

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End the Fed?

Although she is highly critical of the Federal Reserve, and believes it requires "massive reform," DiMartino Booth brushed aside the claim that the United States has no need of a central bank.

"If our financial system was not safeguarded, what on earth could come to the fate of the United States' financial system if it was to come under attack," said Booth. "Does the Federal Reserve need massive reform? Absolutely… but to suggest that we do not need a central bank, in my view, is naïve."

To find out how DiMartino Booth thinks the Federal Reserve should be reformed, watch the video above.

Follow David Lin on Twitter: @davidlin_TV

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