By Craig Wilson
This post Rickards: The Real Reason for the Fed Hikes appeared first on Daily Reckoning.
[Ed. Note: Jim Rickards’ latest New York Times bestseller, The Road to Ruin: The Global Elites’ Secret Plan for the Next Financial Crisis, is out now. Learn how to get your free copy – HERE. This vital book transcends rhetoric from the Fed to prepare you for what you should be watching now.]
Jim Rickards joined Boom Bust and host Lindsay France to discuss the latest monetary policy moves from the Federal Reserve.
While the interview was held prior to the Federal Reserve’s quarter point hike to interest rates, all of the core items covered are even more relevant now. To dive further, Jim Rickards explains the real reason the Fed raised rates and what he thought was next for the Fed and the market.
The Boom Bust host began by asking what he was looking at for reaction to the Fed. The economist remarked, “It was already priced into the markets. What the market is really looking for is some guidance from the Fed about balance sheet normalization. Before the last financial crisis the balance sheet was about $800 billion. They’ve taken it to $4.5 trillion which is how much money the Fed has printed in the last eight years. They now want to normalize that and get it back down.”
“The reason they’re doing both… raising rates and the reason they’re normalizing the balance sheet is because they’re getting ready for the next recession. Research shows that you’ve got to lower interest rates about 3% to get out of a recession.”
Jim Rickards is an acclaimed economist and currency expert where he has worked on Wall Street and advised multiple branches of the U.S government on international monetary policy. He is also a New York Times best-selling author who wrote “The Road to Ruin: The Global Elites’ Secret Plan for the Next Financial Crisis.
Fed Hikes and Recession
Then, to show complexity to the monetary measurements Rickards urged, “But what if a recession happens next month or even next year? This expansion is one of the longest in history. A recession will come sooner than later.”
“How is the Fed going to get us out of a recession if interest rates are only 1%. They’ve got two missions. One is get them up to 3 or 3.5% – at the rate they’re going it may take to 2019. They may not make it that far before the recession hits. If you’re only 1 or 1.5% and the recession hits causing you to lower it to lower to zero, the other thing you can do is QE4 and expand the balance sheet. You’ve got to reduce the balance sheet before you can expand it.”
“They’re getting ready for the next recession… but the economy is looking extremely weak right now and we might even be in recession by the summer. The Fed might even cause the recession they’re preparing to cure. That’s what …read more
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