(Kitco News) – The Federal Reserve’s monetary tightening could send us into a “recession that we won’t recover from for several years,” said John Hathaway, Senior Portfolio Manager at Sprott Asset Management.
“[The Fed] “There is no dial to regulate economic activity,” he explained. “They basically have on-switch or off-switch, and off-switch is cratering the economy.” The Fed raised rates by 75% on Wednesday. bps in response to high inflation. Last year witnessed the highest inflation in four decades. Headline inflation in August was 8.3 percent, and core inflation excluding food and energy was 6.3 percent. The current target range for the Federal Funds Rate is 3 to 3.25 That’s not enough, according to Hathaway, who said the Fed would need to raise the key rate further to successfully lower rates: “You have to get 8 percent off the policy rate to break even.” [inflation]Hathaway spoke with Kitco News anchor and producer David Lin at the Precious Metals Summit in Beaver Creek, Colorado.
Government Debt Limits
With the U.S. national debt-to-GDP ratio at 123 percent, Hathaway said he “can’t imagine” the Fed will raise interest rates high enough to successfully fight inflation.
He recalled a period of high inflation in the 1970s that led the Fed to raise interest rates to 20 percent. “Today, the economy is more fragile than before [in the 1970s]In the 1970s and early 1980s, the ratio of public debt to GDP was small. [of what it is today]Like 30 or 40 percent. Today, we’re between 120 and 130 percent.” If the Fed raises rates, then that could hamper the ability of the U.S. Treasury to service its debt. “Every 1 percent increase in the interest rate paid on that $30 trillion debt adds $300. billion budget deficit,” he said. “There are real limits.”
The role of gold
Inflation hedging isn’t the only reason to hold gold, said Hathaway, who said gold hedges against broader “systemic risk.” “If you look at the long term, I’d say gold has kept up with inflation, but I don’t think that’s a reason to own it,” he said. “It’s the end [a hedge against] Along with the stagflation period of the 1970s, he cited the 2008 financial crisis as an example of such dysfunction: “We are now in a more dangerous period than at any time since the 1970s.” “That’s because … the global debt-to-GDP ratio is higher than ever.” He added that with such high debt levels, “the usual antidotes of raising interest rates and slowing monetary growth” could weaken the economy. , and leads to systemic default risks: “I think we’re going to see a lot of defaults in the next twelve months. It could turn into a sovereign debt default.”
Watch the video above for Hathaway’s gold price prediction.
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