(Kitco News) – The Federal Reserve, which tightened monetary policy during 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 increase of the year will be less than 75 basis points,” she said. “During the first half of next year, they will move towards neutrality. And then in the second half of next year until the beginning of the following year, we are going to see potential cuts.”
She added that alongside rate hikes, the Fed could resume asset purchases, embarking on a new round of quantitative easing (QE). Such a scenario would benefit Wall Street, she said, as banks would receive higher interest rates from customers, while getting cash injections from the Fed.
“That’s exactly one of the potentially positive scenarios for Wall Street,” she said. “It’s making money on the [higher] rate in terms of more payments from its customers, [while] be liquidated in a different way, at a lower cost, through quantitative easing, or the Fed acting more on the repo markets.”
Prins spoke with David Lin, presenter and producer at Kitco News.
Economic crisis in the UK
Unlike the Fed, which continued to sell assets, the Bank of England recently resumed asset purchases to bolster UK pension funds, which were experiencing liquidity problems due to over-leveraging with gilts ( UK government bonds).
“With the price of gilts going down and yields going up…it created a situation where there was a shortfall in the yield of gilts, as well as an increase in price to cover those gilts,” Prins said. . “And so the Bank of England had to announce that they were going to step in and … do quantitative easing of up to £60bn.”
Political instability has added to Britain’s economic woes, as the country has had three successive prime ministers in two months: Boris Johnson, Liz Truss and Rishi Sunak. Sunak was appointed British Prime Minister on Tuesday.
Truss’ tenure as Prime Minister is the shortest in British history and ended following a mini budget that included tax cuts and energy subsidies.
“There is an energy crisis going on in the UK,” Prins said. “And all of a sudden you have less tax revenue, and this announcement was made by the Truss government…all of that created uncertainty.”
The International Monetary Fund has criticized Truss’ proposed tax cuts as “unfair”, saying they would “likely increase inequality”, a view Prins shares.
“At the time, especially since the pandemic… accessibility to cut-rate money by businesses and banks was exacerbating inequality,” she said. “Tax cuts, on top of that, when we look at inflation, a recession, an energy crisis…that’s not something that should be done 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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