In an interview with Kitco News, Ryan McIntyre, CEO of Sprott Inc., said that Fed Chairman Jerome Powell is “walking a very delicate line” between supporting US economic activity and rising inflation.
Although Jerome Powell has hinted that the central bank is in no rush to cut rates, McIntyre said investors should pay closer attention to the Fed's actions: "Clearly, with a 50 basis point cut, the Fed doesn't want to be seen as slow," he said.
There are bigger issues at play beyond the Fed's monetary policy, McIntyre added, and he expects the central bank to continue to focus on supporting the economy, even as inflation remains high.
“The US debt is still the biggest existential threat to the economy. The last thing the Fed wants is a recession, because that will actually increase the deficit. This is the perfect environment for gold. Gold is still a safe haven for cash flow,” the expert said.
Despite the Fed's impressive moves to support economic activity, McIntyre said he expects investors to soon turn to gold to diversify their portfolios.
Even with the Fed's new easing cycle, McIntyre said he expects the economy to "get worse before it gets better." He pointed out that it will take time for the economy to feel the effects of this new easing cycle. He also noted that even with this 50 basis point move, interest rates remain significantly constrained.
“Even with the rate cuts, the economy is not out of the woods yet,” McIntyre said.
In addition, this expert reaffirmed that public debt is still the biggest threat to the global economy: “If you look at the financial markets at the national level, due to the high debt levels worldwide, gold is the only alternative because it is the only asset considered a global currency.”
McIntyre noted that the US is “in a precarious position” as the government is expected to spend more than $1 trillion just to service its debt. He added that the threat to the economy arises when the ratio of services payments to GDP exceeds growth projections.
According to the Fed's updated economic forecasts, U.S. GDP is expected to grow 2% over the next three years. According to estimates from the Congressional Budget Office, services costs as a percentage of GDP are expected to rise to 3.1% this year.
“We can’t get out of this financial situation, and that’s why all roads lead to gold. Eventually, the majority of investors will find gold. And gold will definitely break through $3,000 an ounce; it’s just a matter of time,” McIntyre told Kitco.
