(Kitco News) - The Federal Reserve, which has been tightening its monetary policy stance over the year, will pivot by 2024 due to an economic slowdown, according to Nomi Prins, financial expert and best-selling author.
"I think [The Fed's] last hike of the year will be lower than 75 basis points," she said. "Some time in the first half of next year, they're going to go towards neutrality. And then in the second half of next year to the beginning of the following year, we're going to see potential cuts."
She added that along with rate hikes, the Fed could resume asset purchases, undertaking a new round of quantitative easing (QE). Such a scenario would benefit Wall Street, she said, since banks would receive higher interest rates from clients, while getting liquidity injections from the Fed.
"That's exactly one of Wall Street's potentially positive scenarios," she stated. "It's making money on the [higher] rates in terms of more payments from its customers, [while] getting liquidated in a different way, more cheaply, through quantitative easing, or the Fed acting more in the repo markets."
Prins spoke with David Lin, Anchor and Producer at Kitco News.
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U.K. economic crisis
Unlike the Fed, which has continued to sell assets, The Bank of England recently resumed asset purchases to shore up U.K. pension funds, which faced liquidity problems due to being overleveraged with gilts (UK government bonds).
"With gilts coming down in price, and yields going up… that created a situation in which there was a shortfall in the return from gilts, and also an increase in price to margin those gilt," said Prins. "And so the Bank of England had to announce it was going to step in and… do quantitative easing for up to £60 billion."
Political instability added to Britain's economic woes, as the country went through three successive prime ministers within two months: Boris Johnson, Liz Truss, and Rishi Sunak. Sunak was appointed the U.K.'s Prime Minister on Tuesday.
Truss's term as Prime Minister is the shortest in British history, and ended following a mini-budget which included tax cuts and energy subsidies.
"There is an energy crisis going on in the U.K.," Prins said. "And all of a sudden, you're having less tax revenues coming in, and that announcement was made by the Truss government… all of that created uncertainty."
The International Monetary Fund critiqued Truss's proposed tax cuts as being "unfair," saying it would "likely increase inequality," a view that Prins shares.
"In the period of time, particularly since the pandemic… the accessibility to lower-rate money by corporations and banks was exacerbating inequality," she said. "Tax cuts, thrown on top of that, when we're looking at inflation, a recession, an energy crisis… it's not something that should be done right now."
To find out when Prins thinks the tech sector will recover, watch the video above.
Follow David Lin on Twitter: @davidlin_TV
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