In a recent interview, Federal Reserve Bank’s former Chief Economist, David Stockton shared an interesting perspective in regards to the U.S. economy.
The Fed presently purchases $85 billion in bonds every month and thereby injects currency into the economy. Stockton looks for the Fed to start drawing down its monetary stimulus program (whatever the current iteration of QE we are in) later this year either in September or December.
The furious bond buying aided the U.S. in reducing interest rates to a near decade low and although the rate percentages have grown in response to the idea of Fed tapering, Stockton is convinced rates will climb higher yet.
“I wouldn’t expect necessarily for it to be very sharp,” remarked Stockton. “If the Fed is good at its job of communicating, it advances intentions. But I would expect a bumpy ride here for the second half of the year.”
Anyone care to hazard a guess what that might do to the price of gold?
“I think most recently, it’s been a less-than-ideal performance by the Fed,” Stockton observed. “I think the Fed needs to be clearer about its outlook for QE and, specifically, what kind of factors they will be looking at before they actually begin tapering.”
Mr. Stockton acknowledges that the Fed could change policy at any time, he states that to revisit a policy of monetary expansion after tapering would be much more difficult to do. “Once they begin the tapering, the bar for actually increasing the amount of purchases again would be pretty high.”
A modest rise in interest rates, in Stockton’s view, would not harm the economy, but he advised “I would be cautious at this point. This is still an economy that has failed to achieve to take off a lot. And, we’re looking at a global economy that is looking increasingly soft, especially Asia and China.”
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