(Kitco News) - With markets still nervous after last week's massive selloff and investors split between expectations of a 50-basis-point cut and a 25-basis-point cut in September, Danielle DiMartino Booth, CEO and chief strategist of QI Research, warns that if there is a contagion in other markets, "all bets are off."
DiMartino Booth told Michelle Makori, lead anchor and editor-in-chief at Kitco News, that the Federal Reserve is behind on monetary policy easing and will be forced to play catch-up.
"I don't think that they're going to have a choice by September 18," DiMartino Booth said. "They will have to go 50 basis points. They can try and talk a mean game, but as the data momentum continues, they'll be left without a choice at a certain point, or they're going to appear to be completely obtuse or insensitive, really, for lack of a better word."
The Fed can only ignore a recession for so long, DiMartino Booth added. For her analysis of the latest macro data and the red flags she is seeing, watch the video above.
Emergency Fed rate cut would confirm investor's worst fears
After Wall Street saw its worst day since 2022 at the start of last week, some market participants started to question whether the U.S. central bank could be forced into an emergency rate cut if more volatility ensues.
DiMartino Booth warned that the Fed's emergency rate cut could lead to unintended consequences, as it would confirm investors' worst-case scenario for the U.S. economy.
"If the Fed was to come out with an emergency rate cut right now, it could validate investors' worst fears. They could say, 'Gee, the Fed thinks things are so bad that they have to do something that normally would be reserved for happening in the middle of a financial crisis,'" DiMartino Booth explained. "A minor meltdown in the U.S. stock market is not what the Fed would consider to be justification for coming in with an emergency rate cut at this point."
For DiMartino Booth's full take on the Fed and what to expect in the month leading up to the next monetary policy meeting on September 17-18, watch the video above.
However, there is a scenario in which the Fed could be open to an emergency rate cut, and that is contagion risk.
"If we start to see contagion into the credit markets, it's a completely different story," DiMartino Booth pointed out. "Fed Chair Powell's boogeyman is if bond issuance was to dry up, and that is within the Fed's purview. If we start to see credit drying up, that is something that could cause the Fed to be prompted into an emergency rate cut."
To get insights on the kind of level of contagion risk needed for the Fed to issue an emergency cut, watch the video above.
DiMartino Booth believes the U.S. economy is already in a recession. Watch the video above to get her thoughts on how bad the market selloff could get going into the fall.
DiMartino Booth also analyzes gold and Bitcoin in this environment, watch the video above for her outlook.
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