The Federal Reserve made no explicit mention of tapering anytime soon at this week’s FOMC meeting, but monetary tightening could begin in stages as early as 2022, said Danielle DiMartino Booth, CEO of Quill Intelligence.
Booth told David Lin, anchor of Kitco News, that interest rates would not have to rise to their historic average of 5.7% for debt payments to become unaffordable for the Treasury.
“I think that number is lower than we would think it would be. I think that number is probably somewhere closer to the 3% to 4% range, which is astonishing, historically speaking, to put that into context. That is what the market told us when Jerome Powell was endeavoring to get the Fed Funds rate to 3% and couldn’t do so. They call it the natural rate, and I think that the natural rate that could be withstood by the U.S. government, given it’s pushing $30 trillion in debt, is a much lower threshold than anything you would think to be,” she said.
On the timeline of tapering, DiMartino Booth is not looking for a Fed announcement by the Jackson Hole symposium at the end of August.
“They might be talking about announcing a taper as late as the September or December meeting, meaning they won’t actually begin the process of tapering until 2022, and that sets up the scenario that we’ve seen in the Dot Plots where FOMC members indicate where they think interest rates will be,” she said. “Most of them don’t see that first rate hike coming until 2023.”
For DiMartino’s Booth’s outlook on the economy and a possible double-dip recession, watch the video above. Follow David Lin on Twitter: @davidlin_TV (https://twitter.com/davidlin_TV).