(Kitco News) – The Fed, which has been tightening monetary policy throughout the year, will reverse course by 2024 due to the economic slowdown, financial expert and best-selling author Nomi Prins estimates.
“I think [The Fed’s] the last increase of the year is less than 75 basis points,” he said. “Some time in the first half of next year, they’re going to go toward neutral. And then in the second half of next year to the beginning of the following year, we will see possible cuts.”
He added that along with rate hikes, the Fed could continue asset purchases and engage in new quantitative easing (QE). He said such a scenario would benefit Wall Street because banks would get higher interest rates from customers while receiving liquidity injections from the Fed.
“That’s exactly one of the potentially positive scenarios for Wall Street,” he noted. “It makes money [higher] prices when customers pay more, [while] getting into liquidation in a different way, cheaper, through quantitative easing or the Fed acting more in the repo market.”
Prins spoke with Kitco News anchor and producer David Lin.
Britain’s financial crisis
Unlike the Fed, which has continued to sell assets, the Bank of England recently restarted asset purchases to support UK pension funds, which were experiencing liquidity problems due to their over-leveraged debt (UK government bonds).
“When the prices of the young ones went down and the yields went up … that created a situation where the returns of the young ones fell short, and the prices also went up to the margins of the young young ones,” Prins said. “And so the Bank of England had to announce that it was going to step in and do quantitative easing of up to £60 billion.”
Political instability added to Britain’s economic woes as the country went through three successive prime ministers in the space of two months: Boris Johnson, Liz Truss and Rishi Sunak. Sunak was appointed British Prime Minister on Tuesday.
Truss’s tenure as prime minister is the shortest in British history, ending with a mini-budget that included tax cuts and energy subsidies.
“There is an energy crisis going on in the UK,” Prins said. “And suddenly you’re getting less tax revenue, and the Truss government made that announcement … all of that created uncertainty.”
The International Monetary Fund criticized Truss’s proposed tax cuts as “unfair” and said they were “likely to increase inequality”, a view shared by Prins.
“In this period, especially after the pandemic … the availability of low-interest money from companies and banks exacerbated inequality,” he said. “Tax cuts, thrown on top of that when we’re looking at inflation, a recession, an energy crisis … it shouldn’t be done right now.”
Watch the video above to see when Prins thinks the tech sector will recover.
Follow David Lin on Twitter: @davidlin_TV
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